SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- -----------------------
(PICTURE)
Arizona Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as yields of long-term municipal
bonds fell and newly-issued tax-exempt bonds became scarce. We are pleased
to report that your Prudential Municipal Series Fund -- Arizona Series earned
a positive total return, performing slightly ahead of the average Arizona
municipal bond fund, as measured by Lipper Analytical Services, Inc.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.3% 1.6% 44.5% N/A 45.1%
Class B 3.1% 1.1% 41.5% 122.1% 133.0%
Class C 3.0% N/A N/A N/A 3.1%
Lipper AZ
Muni. Avg3 3.0% 1.2% 43.7% 121.8% 150.8%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 3.2% 7.1% N/A 6.9%
Class B 0.9% 7.2% 8.3% 8.4%
Class C N/A N/A N/A 2.6%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3% for
Class A shares. Class B shares are subject to a contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1%
CDSC for one year. Class B shares will automatically convert to Class A
shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/24/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 30 funds for six months, 25 funds for one
year, 7 funds for five years, 1 fund for 10 years, and 1 fund since
inception of Class B shares on 9/24/84.
Less Means More...
For You!
Prudential mutual fund shareholders will be seeing
total returns increase in the months to come, thanks
to a reduction in Fund management expenses. Prudential
Mutual Funds lowered the rate on January 1, 1995, to
0.45% from 0.50%. It is our way of showing you that we
appreciate your business and that we remain committedto
managing the Fund for your benefit.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Arizona state and federal
income taxes consistent with the preservation of capital. Certain
shareholders may be subject to the federal alternative minimum tax,
however. The Series will invest primarily in Arizona state, municipal
and local government obligations and obligations of U.S. territories
(such as Puerto Rico, the U.S. Virgin Islands and Guam), the income
from which is also exempt from federal and Arizona state income taxes.
On the Hill:
In 1995, Congress will most likely consider an
initiative that would restore full income tax
deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In
addition, Congress may also consider the creation of
a new tax-deferred savings account called the "American
Dream Savings Account." Prudential Mutual Funds supports
both of these proposals, and we urge you to share your
opinion with your Congressional representatives. We will
keep you updated on these initiatives as they make their
way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you,
the tax-exempt bond market was in turmoil because interest rates were
rising sharply, and prices (which move in the opposite direction of
interest rates) were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds
rate (the interbank overnight lending rate), investors began to believe
that the economy was showing signs of slowing. As a result, long-term
interest rates in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In
fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below its
1994 high -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and
those with lower coupons, sometimes called premium and discount bonds.
The higher yielding premium bonds help cushion the impact of rising interest
rates while the lower coupon or discount bonds offer price appreciation
potential when interest rates decline.
-2-
<PAGE>
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made
many issuers reluctant to borrow money. In fact, the Revenue Bond Index
rose dramatically to 6.9% from 5.5% -- nearly one and a half percentage
points. As a result, the level of new bonds issued nationwide fell by 44%
and in Arizona by 63%.
A Tax Reminder:
As a result of the Revenue Reconciliation Act of
1993, it is possible that this year you may have
some taxable income from your normally tax-exempt
municipal bond fund. The law stipulates that the
portion of any gain realized on the sale or retirement
of a tax-exempt bond purchased at a market discount to
its face value may be taxed as ordinary income. The
law affects bonds purchased after April 30, 1993.
Arizona Bonds: Healthy Economy, Strong Credit Quality.
Arizona's economy continues to be one of the fastest growing in the nation,
led by growth in construction, manufacturing and services. New jobs grew
by 4.6% last year, twice the national average and the sixth fastest in the
country. Many of these new jobs are in the rapidly expanding metropolitan
Phoenix area. Much of the state's success story can be attributed to its
competitive wage rates and its pro-business regulatory environment.
The strength of the state's economy makes its bonds all the more valuable.
What's more, Arizona issues very few bonds -- only $2.6 billion last year
compared with $7 billion the year before. Thus, Arizona bonds are more
scarce, of a higher quality, and command higher prices than those of other
states.
How We Traded In The Arizona Market.
In the past six months the Series came across an unusually good buying
opportunity. We sold a triple-B rated hospital bond and bought an insured
bond to upgrade quality without lowering Series' yield. We were able to
execute the transaction because of unusual market volatility induced by
fluctuating interest rates.
We have also sought to increase yield by selectively purchasing Puerto
Rican and Guam utility bonds, because competition for Arizona bonds
usually keeps their prices high and yields low. At present, the Series
has 12% of assets in Puerto Rico, Guam and Virgin Island bonds.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In
fact, the Lehman Brothers Municipal Bond Index has increased 2.8% over
the last six months. That is a substantial relief to investors who
weathered sharply rising interest rates and falling bond prices in 1994.
-3-
<PAGE>
We believe that long-term interest rates will stabilize in the year ahead,
as investors continue to gain confidence that the Federal Reserve is
satisfied that it has inflation under control. In addition, we think
the supply of tax-exempt municipals will continue to contract, which may
provide an additional reward to investors by supporting bond prices.
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Arizona Series through a most
difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Christian Smith
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the
bond market -- in taxable or tax-exempt securities -- you might want to
consider some of the following points. We talked with Prudential Mutual
Funds chief fixed income strategist Dennis Bushe about why bonds and bond
mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
both this risk, and that may be especially important in 1995. First of all,
if the U.S. economy is beginning to slow down, as many economists believe,
then credit quality is a concern. A credit team becomes very valuable,
carefully selecting bonds in different sectors and industries for bond
portfolios. In addition, few individual investors have the resources or
clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled
issuers -- a bond fund does. Finally, the diversification of a bond
fund may help investors avoid wide price swings if one holding does
experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
ARIZONA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.2%
Arizona St. Edl. Loan
Mkt. Corp.,
A $ 1,375 7.00%, 3/1/05, Ser. B... $ 1,448,906
Arizona St. Hsg. Fin.
Review Brd.,
Sngl. Fam. Mtge. Rev.,
10.625%, 12/1/02, Ser.
A-* 5 82.................... 5,182
Arizona St. Mun. Fin.
Proj.,
Cert. of Part.,
8.75%, 8/1/06,
Aaa 700 Ser. 15, B.I.G........ 740,691
7.875%, 8/1/14,
Aaa 2,250 Ser. 25, A.M.B.A.C.... 2,814,075
Arizona St. Trans. Brd.
Hwy. Rev.,
Aaa 2,000D 7.00%, 7/1/09........... 2,190,820
Aa 1,500D 6.00%, 7/1/10........... 1,578,795
Arizona St. Univ. Sys.
Rev.,
Aaa 1,000D 7.00%, 7/1/10, Ser. A... 1,112,850
Central Arizona Wtr.
Consv. Dist., Contract
Rev.,
A1 1,500D 7.50%, 11/1/05.......... 1,694,655
Chandler, Cap. Apprec.
Ref.,
Zero Coupon,
Aaa 2,000 7/1/02,F.G.I.C........ 1,344,780
4.375%, 7/1/13,
Aaa 500 F.G.I.C............... 413,740
Guam Pwr. Auth. Rev.,
Ser. A,
BBB* 250 6.625%, 10/1/14......... 251,687
BBB* 1,780 6.75%, 10/1/24.......... 1,797,658
La Paz Cnty., Unified
Sch. Dist.
No. 27, Parker Impvt.
Proj.,
Baa 450 9.40%, 7/1/96........... 472,518
Maricopa Cnty. Hosp.
Dist.
No. 1, Facs. Rev.,
East Valley Behavioral
Hlth. Fac. Proj.,
7.80%, 6/1/13,
Aaa 725D F.G.I.C............... 784,617
Maricopa Cnty. Ind. Dev.
Auth. Hosp. Fac. Rev.,
John C. Lincoln Hosp.,
7.00%, 12/1/00,
Aaa 2,000 F.S.A................. 2,166,600
Mercy Hlth.,
A1 525D 9.25%, 7/1/11, Ser. D... 544,115
A1 475 9.25%, 7/1/11, Ser. D... 490,514
Maricopa Cnty. Ind. Dev.
Auth. Hosp. Fac. Rev.,
Samaritan Hlth. Svcs.,
Aaa $ 285D 12.00%, 1/1/08.......... $ 331,170
Maricopa Cnty. Sch.
Dist.,
No. 41 Gilbert Proj.,
F.G.I.C.,
Aaa 1,500 Zero Coupon, 7/1/07..... 739,800
No. 40 Glendale Elem.
Sch.,
Zero Coupon, 7/1/04,
Aaa 2,810 A.M.B.A.C............. 1,680,436
No. 92 Pendergast Elem.
Sch.,
Zero Coupon, 7/1/04,
Aaa 1,140 F.G.I.C............... 681,743
No. 11 Peoria Unified
Sch. Dist.,
Zero Coupon, 7/1/04,
Aaa 1,500 M.B.I.A............... 903,570
No. 3 Tempe Elem. Sch.,
Zero Coupon, 7/1/09,
Aaa 1,500 A.M.B.A.C............. 643,395
Zero Coupon, 7/1/14,
Aaa 1,500 A.M.B.A.C............. 463,935
Maricopa Cnty. Unified
Sch. Dist.,
No. 80 Chandler,
Zero Coupon, 7/1/09,
Aaa 1,330 F.G.I.C............... 570,477
6.25%, 7/1/11,
Aaa 1,000 F.G.I.C............... 1,060,070
Navajo Cnty. Unified
Sch. Dist.,
No. 006 Herber
Overgaard,
7.25%, 7/1/00,
Aaa 250 A.M.B.A.C............. 271,970
7.35%, 7/1/03,
Aaa 300 A.M.B.A.C............. 329,970
Nogales Mun. Dev. Auth.
Rev.,
8.00%, 6/1/08,
Aaa 500D M.B.I.A............... 550,210
Peoria Bell Road Impvt.
Dist.,
BBB* 465 7.20%, 1/1/11........... 484,893
Phoenix Arpt. Rev. Ref.,
6.40%, 7/1/12, Ser. D,
Aaa 810 M.B.I.A............... 840,343
Phoenix St. & Hwy. Rev.,
6.25%, 7/1/06, Ser.
A1 1,480 92.................... 1,554,592
Zero Coupon, 7/1/12,
Aaa 3,000 F.G.I.C............... 1,054,650
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Pima Cnty. Ind. Dev.
Auth.
Hlth. Care, Carondelet
Hosp.,
Aaa $ 895D 7.90%, 7/1/05........... $ 990,093
Aaa 105 7.90%, 7/1/05........... 113,794
Aaa 890D 8.00%, 7/1/13........... 987,259
Aaa 110 8.00%, 7/1/13........... 118,920
Pima Cnty. Ind. Dev.
Auth. Rev.,
Tucson Elec. Pwr. Co.,
7.25%, 7/15/10,
Aaa 2,700 F.S.A................. 2,944,809
Pima Cnty., Unified Sch.
Dist. No. 16, Catalina
Foothills,
Zero Coupon, 7/1/09,
Aaa 3,455 F.G.I.C............... 1,481,953
Puerto Rico Comnwlth.,
Gen. Oblig.,
5.78%, 7/1/08,
Aaa 2,000 M.B.I.A............... 2,028,860
Hwy. Auth. Rev.,
Baa1 490D 7.70%, 7/1/03, Ser. Q... 558,855
Puerto Rico Tel. Auth.
Rev.,
A 1,000 5.75%, 1/1/08, Ser. L... 988,730
Salt River Proj. Agric.
Impvt. & Pwr. Dist.,
Elec. Sys. Rev.,
Aa 500 5.75%, 1/1/20, Ser. C... 476,175
Santa Cruz Cnty.,
Unified
Sch. Dist. No. 1
Nogales,
Cruz Cnty.,
A.M.B.A.C.,
Aaa 770 Zero Coupon, 1/1/06..... 417,771
Aaa 700 Zero Coupon, 7/1/06..... 369,236
Scottsdale Ind. Dev.
Auth. Rev.,
Mem. Hosp., Ser. A,
8.50%, 9/1/07,
Aaa 2,100 A.M.B.A.C............. 2,304,666
Scottsdale, Gen. Oblig.,
Aa1 500 5.50%, 7/1/09........... 488,810
Aa1 1,000D 6.00%, 7/1/10........... 1,058,750
Aa1 1,000 4.00%, 7/1/13, Ser. D... 750,090
Tempe, Gen. Oblig.,
Aa $ 500 5.25%, 7/1/13........... $ 460,155
Tempe Impvt. Dist. Auth.
Rev.,
Papago Park Ctr.,
Dist. No. 166,
A1 500 7.10%, 1/1/06........... 520,855
Tempe Union High Sch.
Dist.
No. 213, Ref.,
7.00%, 7/1/08,
Aaa 1,000 F.G.I.C............... 1,142,420
Tolleson Mun. Fin. Corp.
Rev.,
Citizen Util. Co.,
AAA* 400 9.20%, 9/1/05........... 415,708
Tucson Wtr. Rev.,
Aaa 1,000 8.60%, 7/1/00, E.T.M.... 1,160,480
A1 1,000 5.50%, 7/1/09........... 959,690
7.00%, 7/1/10, Ser. C,
Aaa 500 M.B.I.A............... 528,625
Univ. Arizona Revs.
Sys.,
A1 1,750 6.25%, 6/1/11, Ser. B... 1,809,377
Virgin Islands Pub. Fin.
Auth. Rev.,
Hwy. Trans. Trust Fund,
7.25%, 10/1/18, Ser.
NR 600 A..................... 619,596
Virgin Islands Terr.,
Hugo Ins. Claims Fund
Proj.,
7.75%, 10/1/06, Ser.
NR 440 91.................... 471,412
Virgin Islands Wtr. &
Pwr. Auth.,
Elec. Sys. Rev.,
NR 500 7.40%, 7/1/11, Ser. A... 521,050
-----------
Total long-term
investments
(cost $52,844,973).... 56,701,566
-----------
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--0.9%
Goodyear, Gen. Oblig.,
Baa1 $ 100 10.00%, 7/1/95.......... $ 101,722
Pinal Cnty. Ind. Dev.
Auth.
Hlth. Care, Ctrl.
Rev.,
3.75%, 3/1/95,
P-1 400 F.R.D.D............... 400,000
-----------
Total short-term
investments
(cost $499,625)....... 501,722
-----------
Total Investments--99.1%
(cost $53,344,598; Note
4).................... 57,203,288
Other assets in excess
of
liabilities--0.9%..... 520,107
-----------
Net Assets--100%........ $57,723,395
-----------
-----------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note#.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par or the
next date on which the rate of interest is
adjusted.
* Standard & Poor's rating.
D Prerefunded issues are secured by escrowed cash
and/or
direct U.S. guaranteed obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$53,344,598)............................................... $57,203,288
Cash.........................................................................
.......... 43,491
Interest
receivable....................................................................
680,074
Receivable for Fund shares
sold........................................................ 3,000
Other
assets.......................................................................
.... 1,311
-----------------
Total
assets.........................................................................
57,931,164
-----------------
Liabilities
Payable for Fund shares
reacquired..................................................... 138,448
Management fee
payable.................................................................
19,747
Dividends
payable......................................................................
18,117
Accrued
expenses.......................................................................
15,453
Distribution fee
payable...............................................................
14,704
Deferred trustee
fees..................................................................
1,300
-----------------
Total
liabilities....................................................................
207,769
-----------------
Net
Assets.......................................................................
...... $57,723,395
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 49,910
Paid-in capital in excess of
par..................................................... 54,670,230
-----------------
54,720,140
Accumulated net realized loss on
investments......................................... (855,435)
Net unrealized appreciation of
investments........................................... 3,858,690
-----------------
Net assets, February 28,
1995........................................................ $57,723,395
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($28,386,321 / 2,453,723 shares of beneficial interest issued and
outstanding)..... $11.57
Maximum sales charge (3.0% of offering
price)........................................ .36
-----------------
Maximum offering price to
public..................................................... $11.93
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($29,326,585 / 2,536,383 shares of beneficial interest issued and
outstanding)..... $11.56
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($10,489 / 907 shares of beneficial interest issued and
outstanding)............... $11.56
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
----------------
<S> <C>
Income
Interest............................ $1,878,628
----------------
Expenses
Management fee, net waiver of
$4,575.............................. 137,284
Distribution fee--Class A........... 4,856
Distribution fee--Class B........... 117,553
Distribution fee--Class C........... 35
Custodian's fees and expenses....... 39,000
Transfer agent's fees and
expenses............................ 16,000
Registration fees................... 16,000
Reports to shareholders............. 13,000
Audit fee........................... 5,300
Legal fees.......................... 5,000
Trustees' fees...................... 1,600
Miscellaneous....................... 5,304
----------------
Total expenses.................... 360,932
----------------
Net investment income................. 1,517,696
----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions............. (402,508)
Financial futures contract
transactions........................ (136,439)
----------------
(538,947)
----------------
Net change in unrealized
appreciation/depreciation of:
Investments......................... 625,007
Financial futures contracts......... 23,750
----------------
648,757
----------------
Net gain on investments............... 109,810
----------------
Net Increase in Net Assets
Resulting from Operations............. $1,627,506
----------------
----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income... $ 1,517,696 $ 3,162,438
Net realized gain (loss)
on investment
transactions.......... (538,947) 757,503
Net change in unrealized
appreciation/depreciation
of investments........ 648,757 (4,585,506)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,627,506 (665,565)
------------ ------------
Dividends and distributions (Note 1):
Dividends from net
investment income
Class A............... (282,644) (386,495)
Class B............... (1,234,816) (2,775,943)
Class C............... (236) --
------------ ------------
(1,517,696) (3,162,438)
------------ ------------
Distributions from net realized gains
Class A............... (36,415) (74,328)
Class B............... (254,495) (618,468)
Class C............... (52) --
------------ ------------
(290,962) (692,796)
------------ ------------
Series share transactions
(net of share
conversions) (Note 5):
Net proceeds from shares
sold.................. 3,206,642 10,037,346
Net asset value of
shares issued in
reinvestment of
dividends and
distributions......... 962,676 2,064,510
Cost of shares
reacquired.............. (6,043,600) (11,709,424)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions.......... (1,874,282) 392,432
------------ ------------
Total decrease............ (2,055,434) (4,128,367)
Net Assets
Beginning of period....... 59,778,829 63,907,196
------------ ------------
End of period............. $ 57,723,395 $ 59,778,829
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Arizona Series (the ``Series'') commenced
investment operations in September, 1984. The Series is diversified and seeks
to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities whose ratings are
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic or political developments in a specific
state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain(loss) on financial futures contracts. The Series invests in financial
futures contracts in order to hedge its existing portfolio securities or
securities the Series intends to purchase, against fluctuations in value caused
by changes in prevailing interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
-11-
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$4,575 ($0.001 per share for Class A, B and C shares; .02% of average net
assets). The Series' is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $65,900 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $34,900 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $11,400 for the services of PMFS. As of February 28, 1995,
approximately $2,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $7,663,280 and $9,839,080, respectively.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation of investments, including
short-term investments, for federal income tax purposes is $3,858,690 (gross
unrealized appreciation--$4,223,613 gross unrealized depreciation--$364,923).
Note 5. Capital The Series offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3.0%. Class B shares are sold with
a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase.
-12-
<PAGE>
<PAGE>
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share. Transactions in shares of beneficial
interest for the six months ended February 28, 1995 and the fiscal year ended
August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28, 1995:
Shares sold................... 30,755 $ 345,119
Shares issued in reinvestment
of dividends and
distributions............... 19,309 217,346
Shares reacquired............. (101,135) (1,128,211)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (51,071) (565,746)
Shares issued upon conversion
from Class B................ 1,842,385 20,984,765
---------- ------------
Net increase in shares
outstanding................. 1,791,314 $ 20,419,019
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 156,225 $ 1,879,629
Shares issued in reinvestment
of dividends and
distributions............... 29,257 350,410
Shares reacquired............. (55,416) (665,858)
---------- ------------
Net increase in shares
outstanding................. 130,066 $ 1,564,181
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28, 1995:
Shares sold................... 253,915 $ 2,851,515
Shares issued in reinvestment
of dividends and
distributions............... 66,646 745,052
Shares reacquired............. (439,506) (4,915,389)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (118,945) (1,318,827)
Shares reacquired upon
conversion into Class A..... (1,842,385) (20,984,765)
---------- ------------
Net decrease in shares
outstanding................. (1,961,330) $(22,303,587)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 679,458 $ 8,157,517
Shares issued in reinvestment
of dividends and
distributions............... 142,601 1,714,100
Shares reacquired............. (930,146) (11,043,566)
---------- ------------
Net decrease in shares
outstanding................. (108,087) $ (1,171,949)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Six months ended February 28, 1995:
Shares sold................... 865 $ 10,008
Shares issued in reinvestment
of dividends and
distributions............... 25 278
---------- ------------
Net increase in shares
outstanding................. 890 $ 10,286
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 17 $ 200
---------- ------------
Net increase in shares
outstanding................. 17 $ 200
---------- ------------
---------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year
Ended August 31, through
February 28,
- --------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------ ------
------ ------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 11.59 $12.44 $11.88
$11.32 $10.80 $ 10.99
------------ ------ ------
------ ------ -----------
Income from investment operations
Net investment income..................... .32@ .65 .67
.68 .69 .42
Net realized and unrealized gain (loss) on
investment transactions................. .04 (.72) .68
.56 .52 (.19)
------------ ------ ------
------ ------ -----------
Total from investment operations........ .36 (.07) 1.35
1.24 1.21 .23
------------ ------ ------
------ ------ -----------
Less distributions
Dividends from net investment income...... (.32) (.65)
(.67) (.68) (.69) (.42)
Distributions from net realized gains..... (.06) (.13)
(.12) -- -- --
------------ ------ ------
------ ------ -----------
Total distributions..................... (.38) (.78)
(.79) (.68) (.69) (.42)
------------ ------ ------
------ ------ -----------
Net asset value, end of period............ $ 11.57 $11.59 $12.44
$11.88 $11.32 $ 10.80
------------ ------ ------
------ ------ -----------
------------ ------ ------
------ ------ -----------
TOTAL RETURN#:............................ 3.26% (.59)%
11.79% 11.23% 11.45% 2.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $28,386 $7,675 $6,622
$2,146 $1,508 $436
Average net assets (000).................. $9,794 $7,141 $3,613
$1,758 $937 $260
Ratios to average net assets:
Expenses, including distribution fees... .95%*@ .89%
.92% 1.02% 1.02% .96%*
Expenses, excluding distribution fees... .85%*@ .79%
.82% .92% .92% .86%*
Net investment income................... 5.82%*@ 5.40%
5.58% 5.81% 6.13% 6.36%*
Portfolio turnover rate................... 14% 33%
14% 42% 25% 49%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less
than a full year are not annualized.
@ Net of management fee waiver.
See Notes to Financial Statements.
-14-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
ARIZONA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
- -------------------------------------------------------------------- Class
C
Six
------------
Months
Ended
Six Months
February Year
Ended August 31, Ended
28,
- ------------------------------------------------------- February 28,
1995 1994 1993
1992 1991 1990 1995
<S> <C> <C> <C>
<C> <C> <C> <C>
-------- ------- -------
------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 11.58 $ 12.44 $ 11.87
$ 11.32 $ 10.80 $ 10.97 $11.58
-------- ------- -------
------- ------- ------- ------
Income from investment operations
Net investment income..................... .30 @ .60 .62
.63 .64 .65 .29@
Net realized and unrealized gain (loss) on
investment transactions................. .04 (.73) .69
.55 .52 (.17) .04
-------- ------- -------
------- ------- ------- ------
Total from investment operations........ .34 (.13) 1.31
1.18 1.16 .48 .33
-------- ------- -------
------- ------- ------- ------
Less distributions
Dividends from net investment income...... (.30) (.60) (.62)
(.63) (.64) (.65) (.29)
Distributions from net realized gains..... (.06) (.13) (.12)
-- -- -- (.06)
-------- ------- -------
------- ------- ------- ------
Total distributions..................... (.36) (.73) (.74)
(.63) (.64) (.65) (.35)
-------- ------- -------
------- ------- ------- ------
Net asset value, end of period............ $ 11.56 $ 11.58 $ 12.44
$ 11.87 $ 11.32 $ 10.80 $11.56
-------- ------- -------
------- ------- ------- ------
-------- ------- -------
------- ------- ------- ------
TOTAL RETURN#:............................ 3.08% (1.08)% 11.42%
10.68% 11.02% 4.49% 2.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $29,327 $52,104 $57,286
$51,697 $57,209 $59,216 $10
Average net assets (000).................. $47,411 $55,526 $53,656
$53,477 $58,973 $60,359 $9
Ratios to average net assets:
Expenses, including distribution fees... 1.34%*@ 1.29% 1.32%
1.42% 1.41% 1.30% 1.60%*@
Expenses, excluding
distribution fees..................... .84%*@ .79% .82%
.92% .91% .82% .85%*@
Net investment income................... 5.25%*@ 5.40% 5.18%
5.42% 5.77% 5.99% 5.08%*@
Portfolio turnover rate................... 14% 33% 14%
42% 25% 49% 14%
<CAPTION>
August 1,
1994D
through
August 31,
1994
<S> <C>
-----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 11.60
-----------
Income from investment operations
Net investment income..................... .04
Net realized and unrealized gain (loss) on
investment transactions................. (.02)
-----------
Total from investment operations........ .02
-----------
Less distributions
Dividends from net investment income...... (.04)
Distributions from net realized gains..... --
-----------
Total distributions..................... (.04)
-----------
Net asset value, end of period............ $ 11.58
-----------
-----------
TOTAL RETURN#:............................ 0.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $200@@
Average net assets (000).................. $199@@
Ratios to average net assets:
Expenses, including distribution fees... 1.90%*
Expenses, excluding
distribution fees..................... 1.14%*
Net investment income................... 6.34%*
Portfolio turnover rate................... 33%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for periods
of less than a full year are not annualized.
@ Net of management fee waiver.
@@ Figures are actual and not rounded to the nearest thousand.
See Notes to Financial Statements.
-15-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435M101 MF117E2
74435M200 (LOGO) Cat. #6426313
74435M598
SEMI-ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
(ICON)
Connecticut
Money Market Series
(LOGO)
<PAGE>
Letter to
Shareholders
----------------------------------------------------------
April 3, 1995
Dear Shareholder:
Over the past six months, the Federal Reserve has been busy raising short-term
interest rates, which had a positive effect on both the taxable and tax-exempt
money markets. We are pleased to report that the yield on your Prudential
Municipal Series Fund -- Connecticut Money Market Series has increased more
than one full percentage point since last August to 3.4% from 2.2%. Your Series
has performed better than the Donoghue Connecticut tax-exempt fund average of
3.3% for 12 funds.
<TABLE>
<CAPTION>
SERIES' PERFORMANCE
As of February 28, 1995
7-Day
Weighted
Net Current Tax Equivalent Yield
Average
Assets (mil.) Yield @31% @36% @39.6%
Maturity
<S> <C> <C> <C> <C> <C> <C>
Conn. Money
Market Series $55.8 3.4% 5.2% 5.6% 6.0% 60
days
Donoghue Conn.
Tax-Exempt Funds Avg.* N/A 3.3% 5.0% 5.4% 5.8% 44
days
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee of future results. An investment in the Series is neither insured
nor guaranteed by the U.S. government and there can be no assurance that the
Series will be able to maintain a stable net asset value.
* Donoghue returns as of 2/27/95.
Fund Overview.
Your Connecticut Money Market Series seeks to provide a high level of income
which is free from Connecticut and federal income taxes, while maintaining a
stable net asset value of $1 per share. There can be no assurance that the
Series' investment objective will be achieved. The Series invests primarily
in high quality, short-term, tax-exempt Connecticut state, municipal and local
bonds and bonds from other qualifying issuers.
The Federal Reserve Tightens.
The U.S. economy grew in 1994 at the robust annual rate approximating 4%,
a stronger rate than many had anticipated as the year began. Three million
-1-
<PAGE>
new jobs were created during the year and consumer confidence was at a four-year
high. Fearing that this dramatic growth would increase inflation, the Federal
Reserve started to increase short-term interest rates. By February 1995, the
central bank had increased the federal funds rate (the overnight bank lending
rate) seven times, doubling the rate to 6% from 3% in a year.
There were some indications in late February that the Federal Reserve was
having some success in slowing economic growth. Inflation remains below 3%,
with no signs of rising anytime soon. Commodities prices (one precursor of
inflation) have traded within an acceptable range throughout the year, while
wages (another leading indicator) have stayed flat. With economic growth
slowing, we don't expect wage and price pressures to develop any time soon.
On the Hill...
In 1995, Congress will most likely consider an initiative that would restore
full income tax deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In addition, Congress may also
consider the creation of a new tax-deferred savings account called the "American
Dream Savings Account." Prudential Mutual Funds supports both of these
proposals, and we urge you to share your opinion with your Congressional
representatives. We will keep you updated on these initiatives as they make
their way through the legislative process.
Rising Rates Were Good.
Rising rates were good news for the Connecticut Money Market Series. The
Series' 7-day current yield on February 28, 1995 stood at 3.4%, which is more
than a full percentage point higher than the 2.2% recorded on August 31, 1994.
An individual in the 39.6% federal tax bracket would have to have earned
about 6.0% from a taxable investment to match this return.
The Series, anticipating that interest rates would rise, maintained a shorter
weighted average maturity (WAM) to take advantage of higher rates. After the
central bank moved, we selectively extended the maturity of the portfolio. As
of February 28, WAM stood at 60 days, compared to 44 days for the Donoghue
Connecticut average.
Seasonal Factors Affect The Municipal Market, Too.
While rising short-term interest rates in the taxable market affect the
tax-exempt market, it takes time before the full impact is felt. In addition,
the municipal market is more sensitive to seasonal supply and demand factors
that cause volatility in short-term, tax-exempt rates.
For example, 7-day securities in the national tax-free market at the end of
December yielded almost 6% on an annualized basis, as investors withdrew
money for holiday spending. This drove the supply of short-term bonds up,
prices down and yields higher. The reverse occurred by mid January as assets
flowed again into tax-exempt funds lowering yields to 3%. There are other
times when this seasonal factor occurs, such as in April when income taxes
are due, and investors liquidate some of their money market positions to pay
their tax bills.
A Closer Look At Connecticut.
The Connecticut economy is slowly recovering from the recession of the
early 1990s. The state's finances are stable, thanks in large measure to the
elimination of a $1 billion deficit in 1991. Maintaining this stability in lieu
-2-
<PAGE>
of the proposed phase out of the state income tax will most likely require
significant spending reductions.
Its small market size relative to other states makes Connecticut a unique and
challenging investment climate. Still your Series' strategy is to seek out high
quality issues while diversifying the portfolio. During the past six months we
further diversified the portfolio by reducing our exposure to Connecticut
general obligation securities and moving into high quality local credits, such
as bonds issued by Fairfield County and the City of New Haven. The New Haven
issue is insured by the Financial Guaranty Insurance Company and is rated
Aaa/AAA by Moody's Investor Service and Standard & Poors Corp., respectively.
The Outlook.
We believe 1995 should be a positive year for money market investors
highlighted by moderate U.S. economic growth at a rate that is manageable.
Inflation may edge up a bit, but an increase has already been discounted by
the markets.
As always, it is a pleasure to work for you. We are pleased to be able to
report this news to you and thank you for the confidence you have shown in
us by choosing the Prudential Municipal Series Fund -- Connecticut Money
Market Series.
Sincerely,
Lawrence C. McQuade
President
Richard Lynes
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
CONNECTICUT MONEY MARKET SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--99.0%
City of New Haven,
5.00%, 2/15/96, Ser.
Aaa $ 1,250 95.................... $ 1,254,588
Connecticut St. Dev.
Auth.
Jewish Cmnty. Ctr. of
New Haven,
4.20%, 3/1/95, Ser. 92,
A-1* 725 F.R.M.D............... 725,000
Lt. & Pwr. Co. Proj.,
4.10%, 3/1/95, Ser. 93B,
VMIG1 2,700 F.R.W.D............... 2,700,000
Rate Conco Proj.,
4.00%, 3/2/95, Ser. 85,
P1 1,700 F.R.W.D............... 1,700,000
RK Bradley Assoc. Proj.,
4.05%, 3/1/95, Ser. 85,
A-2* 1,500 F.R.W.D............... 1,500,000
Connecticut St. Dev.
Auth.,
Rand Whitney Container
Bd.,
3.70%, 3/1/95, Ser. 93,
P1 1,000 F.R.W.D............... 1,000,000
SHW Inc. Proj.,
4.15%, 3/1/95, Ser. 90,
NR 2,600 F.R.W.D............... 2,600,000
Connecticut St. Gen.
Oblig.,
5.20%, 5/1/95, Ser.
Aa 1,000 94.................... 1,003,258
Econ. Recovery Notes,
4.10%, 3/1/95, Ser. 91B,
VMIG1 1,000 F.R.W.D............... 1,000,000
Connecticut St. Hlth. &
Edl. Facs. Auth. Rev.
Charlotte-Hungerford,
4.15%, 3/2/95, Ser. B,
VMIG1 1,300 F.R.W.D............... 1,300,000
Pomfret School Issue,
Series A,
VMIG1 1,000 3.80%, 2/23/95.......... 1,000,000
Yale Univ., T.E.C.P.,
VMIG1 1,100 4.05%, 4/7/95, Ser. L... 1,100,000
VMIG1 1,500 4.05%, 4/7/95, Ser. N... 1,500,000
Connecticut St. Hsg.
Fin. Auth., Mtg. Fin.
Prog.,
4.00%, 5/15/95, Ser.
Aa 1,075 D-1................... 1,075,000
4.50%, 11/15/95, Ser.
VMIG1 1,000 93H-2................. 1,000,000
Taxable Hsg. Mtg. Fin.
Sub.,
3.65%, 5/15/95, Ser.
VMIG1 $ 1,000 92D-2, A.N.N.M.T...... $ 1,000,000
Connecticut St. Spec.
Assmt.,
Unemployment Comp.,
4.05%, 3/1/95, Ser. 93B,
VMIG1 2,500 F.R.W.D............... 2,500,000
Connecticut St. Spec.
Tax Oblig.,
Trans. Infrastructure
Rev., F.R.W.D.,
4.00%, 3/1/95, Ser. 90
VMIG1 3,100 I..................... 3,100,000
East Lyme Ct., Gen.
Oblig.,
4.25%, 8/3/95, Ser. 94,
NR 2,800 B.A.N................. 2,802,284
Fairfield Connecticut
5.25%, 1/16/95,
NR 1,000 B.A.N................. 1,003,095
Fairfield Ct., Gen.
Oblig.,
Swr. Assmt. Note,
NR 1,750 3.60%, 6/9/95........... 1,750,458
Hartford Connecticut
Redevelopment Agency
Multi Family Mortgage,
4.15%, 3/2/95, Ser.
A-1* 2,000 90.................... 2,000,000
Puerto Rico Comnwlth.,
Dev. Bank.,
3.90%, 3/1/95, Ser. 85,
F.R.W.D............... 2,300,000
VMIG1 2,300
Puerto Rico Comnwlth.
Hwy. & Trans. Auth.
Rev., F.R.W.D.,
3.50%, 3/1/95, Ser.
VMIG1 800 85.................... 800,000
Puerto Rico Hsg. Fin.
Corp.
Multifamily Mtge. Rev.,
Portfolio A,
3.95%, 3/15/95, Ser.
90I, M.T.H.O.T........ 2,165,000
Aa 2,165
Puerto Rico Ind. Med. &
Environ. Facs.,
Ana G. Mendez Ed. Fndtn,
3.90%, 3/1/95, Ser. 85,
F.R.W.D............... 1,200,000
A-1* 1,200
Inter Amer. Proj.,
T.E.C.P.,
3.50%, 3/3/95, Ser.
VMIG1 1,200 88.................... 1,200,000
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Puerto Rico Ind. Med. &
Environ. Facs.,
Inter Amer. Proj.,
T.E.C.P.,
4.00%, 4/4/95, Ser.
VMIG1 $ 800 88.................... $ 800,000
4.00%, 5/1/95, Ser.
VMIG1 700 88.................... 700,000
Reynolds Metal Co.
Proj., A.N.N.O.T.,
4.00%, 9/1/95, Ser. 83
P1 1,900 A..................... 1,900,000
Schering-Plough Corp.,
A.N.N.O.T.,
4.35%, 12/1/95, Ser.
83A, A.N.N.O.T........ 2,492,711
NR 2,500
Puerto Rico Maritime
Shipping Auth.,
3.50%, 3/15/95, Ser. 90,
T.E.C.P............... 2,700,000
P-1 2,700
Stamford Connecticut
Housing Authority
Revenue
Morgan Street Project,
VMIG1 1,400 3.95%, 3/1/95........... 1,400,000
Stamford Ct.,
3.07%, 3/22/95,
MIG1 3,000 B.A.N................. 3,000,066
-----------
Total Investments--99.0%
(amortized
cost--$55,271,460**)... 55,271,460
Other assets in excess
of
liabilities--1.0%..... 545,523
-----------
Net Assets--100%........ $55,816,983
-----------
-----------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender.
A.N.N.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.R.M.D.--Floating Rate (Monthly) Demand Note #.
F.R.W.D.--Floating Rate (Weekly) Demand Note #.
M.T.H.O.T.--Monthly Optional Tender.
T.E.C.P.--Tax Exempt Commercial Paper.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par, or the
next date on which the rate of interest is
adjusted.
* Standard & Poor's rating.
** The cost of securities for federal income tax
purposes is substantially the same as for financial
reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains
a description of Moody's and Standard & Poor's ratings.
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
February 28,
1995
------------
<S>
<C>
Assets
Investments, at amortized cost which approximates market
value............................. $55,271,460
Cash.........................................................................
.............. 871,433
Receivable for Fund shares
sold............................................................ 938,995
Interest
receivable...................................................................
..... 494,712
Deferred
expenses.....................................................................
..... 23,144
------------
Total
assets.......................................................................
...... 57,599,744
------------
Liabilities
Payable for investments
purchased..........................................................
1,257,366
Payable for Fund shares
reacquired.........................................................
443,712
Accrued
expenses.....................................................................
...... 48,950
Distribution fee
payable...................................................................
14,946
Dividends
payable......................................................................
.... 11,094
Due to
Manager......................................................................
....... 5,393
Deferred Trustees'
fees....................................................................
1,300
------------
Total
liabilities..................................................................
...... 1,782,761
------------
Net
Assets.......................................................................
.......... $55,816,983
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................... $ 558,170
Paid-in capital in excess of
par......................................................... 55,258,813
------------
Net assets, February 28,
1995............................................................ $55,816,983
------------
------------
Net asset value, offering price and redemption price per share ($55,816,983
/ 55,816,983
shares of beneficial interest issued and outstanding; unlimited number of
shares
authorized)..................................................................
.......... $1.00
------------
------------
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended
February
28,
Net Investment Income 1995
--------
<S> <C>
Income
Interest and discount earned....... $951,586
--------
Expenses
Management fee, net of fee waiver
of $100,700...................... 33,567
Distribution fee................... 33,567
Custodian's fees and expenses...... 38,000
Transfer agent's fees and
expenses......................... 21,000
Reports to shareholders............ 14,000
Registration fees.................. 9,000
Amortization of organization
expense.......................... 7,504
Audit fee.......................... 5,000
Legal fees......................... 5,000
Trustees' fees..................... 1,600
Miscellaneous...................... 1,883
--------
Total expenses................... 170,121
--------
Net investment income................ 781,465
--------
Realized Gain on Investments
Net realized gain on investment
transactions....................... 156
--------
Net Increase in Net Assets Resulting
from Operations...................... $781,621
--------
--------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) Six Months August 31,
in Net Assets Ended 1994
February 28, -------------
1995
-------------
<S> <C> <C>
Operations
Net investment
income................ $ 781,465 $ 1,208,290
Net realized gain
(loss) on investment
transactions........ 156 (4,743)
------------- -------------
Net increase in net
assets resulting
from operations..... 781,621 1,203,547
------------- -------------
Dividends and
distributions to
shareholders.......... (781,621) (1,203,547)
------------- -------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares subscribed... 114,827,821 210,712,023
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends and
distributions....... 762,400 1,156,043
Cost of shares
reacquired.......... (114,075,410) (215,359,425)
------------- -------------
Net increase
(decrease) in net
assets from Series
share
transactions........ 1,514,811 (3,491,359)
------------- -------------
Total increase
(decrease)............ 1,514,811 (3,491,359)
Net Assets
Beginning of period..... 54,302,172 57,793,532
------------- -------------
End of period........... $ 55,816,983 $ 54,302,173
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Connecticut Money Market Series (the
``Series'') commenced investment operations on August 5, 1991. The Series is
non-diversified and seeks to provide the highest level of income that is exempt
from Connecticut State, local and federal income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities having a maturity of
thirteen months or less and whose ratings are within the two highest ratings
categories by a nationally recognized statistical rating organization, or if not
rated, are of comparable quality. The ability of the issuers of the securities
held by the Series to meet their obligations may be affected by economic
developments in a specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium.
All securities are valued as of 4:30 p.m., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
Deferred Organization Expenses: The Series incurred approximately $52,600 in
organization and initial registration expenses. Such amount has been deferred
and is being amortized over a period of 60 months ending July 1996.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series. For the
six months ended February 28, 1995, PMF voluntarily waived 75% of its management
fee. The amount of fees waived for the period ended February 28, 1995 amounted
to $100,700 ($.002 per share; .375% of average net assets, as annualized).
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable monthly, at an annual rate of .125 of 1% of the Series'
average daily net assets. PMFD pays various broker-dealers, including Prudential
Securities Incorporated (``PSI'') and Pruco Securities Corporation, affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
-8-
<PAGE>
<PAGE>
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidary of
PMF, serves as the Fund's transfer agent. During
the period ended February 28, 1995, the Series incurred fees of approximately
$15,000 for the services of PMFS. As of February 28, 1995, approximately $2,600
of such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations also include certain out-of-pocket expenses paid to
non-affiliates.
-9-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
August 5,
Six Months
1991*
ended
Year ended August 31, through
February 28,
- ------------------------------- August 31,
1995
1994 1993 1992 1991
<S> <C>
<C> <C> <C> <C>
------------
- ------- ------- ------- ----------
<CAPTION>
PER SHARE OPERATING PERFORMANCE:
<S> <C>
<C> <C> <C> <C>
Net asset value, beginning of period...................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains(D)............... .014
.020 .022 .034 .003
Dividends and distributions to shareholders............... (.014)
(.020) (.022) (.034) (.003)
------------
- ------- ------- ------- ----------
Net asset value, end of period............................ $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
- ------- ------- ------- ----------
------------
- ------- ------- ------- ----------
TOTAL RETURN#:............................................ 1.45%
2.02% 2.20% 3.42% .30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................... $ 55,817
$54,302 $57,794 $40,480 $ 10,904
Average net assets (000).................................. $ 54,151
$60,594 $53,152 $33,964 $ 6,730
Ratios to average net assets(D):
Expenses, including distribution fee.................... .634%**
.542% .387% .125% .125%**
Expenses, excluding distribution fee.................... .509%**
.417% .262% .00% .00%**
Net investment income................................... 2.91%**
1.99% 2.17% 3.20% 4.42%**
</TABLE>
- ---------------
* Commencement of investment operations.
** Annualized.
(D) Net of management fee waiver and/or expense subsidy.
# Total return includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-10-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
MF154E2
74435M648 (LOGO) Cat. #444515Z
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ----------------------
(ICON)
Florida Series
(LOGO)
<PAGE>
Letter to
Shareholders
--------------------------------
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and newly-
issued tax-exempt bonds became scarce. We are pleased to report that your
Prudential Municipal Series Fund -- Florida Series has earned a positive total
return, performing in line with the average Florida municipal bond fund as
measured by Lipper Analytical Services, Inc.
Less Means More...For You!
Prudential mutual fund shareholders will be seeing total returns increase
in the months to come, thanks to a reduction in Fund management expenses.
Prudential Mutual Funds lowered the rate on January 1, 1995, to 0.45% from
0.50%. It is our way of showing you that we appreciate your business and
that we remain committed to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.3% 1.0% N/A N/A 38.7%
Class B 3.0% N/A N/A N/A 3.0%
Class C 2.9% 0.1% N/A N/A 3.6%
Lipper FL
Muni. Avg.3 3.1% 0.4% 48.2% N/A 36.3%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A -2.0% N/A N/A 7.4%
Class B N/A N/A N/A -3.4%
Class C -0.7% N/A N/A 2.3%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Series charges a maximum front-end sales load of 3% for Class A
shares. Class B shares are subject to a contingent deferred sales charge of
5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1% CDSC for
one year. Class B shares will automatically convert to Class A shares on a
quarterly basis, after approximately seven years.
2 Inception dates: 12/28/90 Class A; 8/1/94 Class B; 7/26/93 Class C.
3 Lipper average returns are for 66 funds for six months, 53 funds for one
year, 4 funds for five years, 0 funds for 10 years, and 11 funds since
inception of Class A shares on 12/28/90.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Florida state and federal
income taxes consistent with preservation of capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. The Series
will invest primarily in Florida state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and Guam), the income from which is also exempt from Florida
intangibles tax and federal income taxes.
On the Hill:
In 1995, Congress will most likely consider an initiative that would restore
full income tax deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In addition, Congress may also
consider the creation of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual Funds supports both of
these proposals, and we urge you to share your opinion with your Congressional
representatives. We will keep you updated on these initiatives as they make
their way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds rate
(the interbank overnight lending rate), investors began to believe that the
economy was showing signs of slowing. As a result, long-term interest rates in
the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In fact,
on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its lowest
since last June. That's more than a full percentage point below its 1994 high
- -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and those
with lower coupons, sometimes called premium and discount bonds. The higher
yielding premium bonds help cushion the impact of rising interest rates while
the lower coupon or discount bonds offer price appreciation potential when
interest rates decline.
-2-
<PAGE>
A Tax Reminder...
As a result of the Revenue Reconciliation Act of 1993, it is possible that
this year you may have some taxable income from your normally tax-exempt
municipal bond fund. The law stipulates that the portion of any gain realized
on the sale or retirement of a tax-exempt bond purchased at a market discount
to its face value may be taxed as ordinary income. The law affects bonds
purchased after April 30, 1993.
As bond prices fell over the winter, the Series put its cash to work,
reducing a 6% position to 1% on February 28. In addition, we tried to increase
yield by slightly reducing the Series' holdings in insured bonds and replacing
them with higher yielding bonds rated AA.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many issuers
reluctant to borrow money. In fact, the Revenue Bond Index rose dramatically
to 6.9% from 5.5% -- nearly one and a half percentage points. As a result, the
level of new bonds issued nationwide fell by 44% and in Florida by 57%.
Florida: Now the Fourth Largest State.
One of the fastest growing areas in the nation, Florida is now the fourth
largest state. Employment is growing as well, having risen nearly 4% in 1994.
The very healthy economy relies on growing tourism, trade, agriculture and
financial industries. While 1994 was a good year, the cyclical nature of the
economy can be a disadvantage should growth slow, particularly since the state
relies on the sales tax for 70% of its general fund revenues.
Fortunately, the state has a satisfactory financial situation and a moderate
debt burden. It has established a reserve fund of 2% of revenues, or about $260
million, and voters recently elected to limit growth of future state revenues
so that it will not exceed that of personal income. Of course, this cap
excludes debt service.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last six
months. That is a substantial relief to investors who weathered sharply rising
interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we believe the supply of
tax-exempt municipals will continue to contract, which should also provide an
additional reward to investors by supporting prices.
-3-
<PAGE>
Fund Update
Starting in February 1995, Class B shareholders may have begun to notice a
change in their Fund holdings. That's when Class B shares began to
automatically convert to Class A shares, on a quarterly basis, approximately
seven years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly, after
conversion you will earn higher total returns on your investment than you
would have as a Class B shareholder.
Following the May cycle, conversions of eligible Class B shares and special
exchanges of Class B and C shares will take place each calendar quarter
(March, June, September and December) starting in September 1995.
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Florida Series through a most
difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Marie Conti
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
- --------------------------------------
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds chief
fixed income strategist Dennis Bushe about why bonds and bond mutual funds may
make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course you
can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
this risk, and that may be especially important in 1995. First of all, if the
U.S. economy is beginning to slow down, as many economists believe, then credit
quality is a concern. A credit team becomes very valuable, carefully selecting
bonds in different sectors and industries for bond portfolios. In addition,
few individual investors have the resources or clout to continually monitor
companies, unearth possible credit problems before they surface, and negotiate
favorable terms with troubled issuers -- a bond fund does. Finally, the
diversification of a bond fund may help investors avoid wide price swings if
one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
FLORIDA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--97.4%
Alachua Cnty. Hlth. Facs. Auth.,
Rev., Santa Fe Healthcare
Facs. Proj.,
Baa $ 1,750 7.60%, 11/15/13...... $ 1,798,370
Alachua Cnty. Ind. Dev. Rev.,
HB Fuller Co. Proj.,
NR 3,000 7.75%, 11/1/16....... 3,100,830
Brevard Cnty. Edl. Facs. Auth.,
Florida Inst. of Techn.,
BBB+* 1,500 6.875%, 11/1/22...... 1,510,845
Wuesthoff Mem. Hosp.,
6.625%, 4/1/13, Ser.
Aaa 1,000 A, M.B.I.A......... 1,053,240
Brevard Cnty. Sch. Brd., Ctfs.
of Part.,
6.50%, 7/1/12, Ser.
Aaa 5,500 A, A.M.B.A.C....... 5,721,815
Broward Cnty. Edl. Facs. Auth.
Rev., Nova Univ. Dorm. Proj.,
7.50%, 4/1/17, Ser.
BBB* 1,500D A.................. 1,703,355
Broward Cnty. Hlth. Facs Auth.,
North Beach Hosp.,
6.75%, 8/15/06,
Aaa 1,000 M.B.I.A............ 1,084,700
Broward Cnty. Res. Rec. Rev.,
Ltd. Partnership So. Proj.,
A 2,650 7.95%, 12/1/08....... 2,896,450
Broward Cnty., Wtr. & Swr. Rev.,
5.125%, 10/1/15,
Aaa 1,000 A.M.B.A.C.......... 901,640
Cape Canaveral Hosp.
Dist. Rev., Ctfs.
of Part.,
6.875%, 1/1/21,
Aaa 1,000 A.M.B.A.C.......... 1,063,610
City of Cocoa,
Wtr. & Swr. Rev.,
5.00%, 10/1/23,
Aaa 1,000 A.M.B.A.C.......... 860,370
Clay Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge.,
7.45%, 9/1/23, Ser.
Aaa 375 A, G.N.M.A......... 395,764
Coral Springs Impvt.
Dist.,
Wtr. & Swr. Ref.,
6.00%, 6/1/10,
Aaa $ 1,000 M.B.I.A............ $ 1,034,320
Dade Cnty. Aviation
Dept.,
Aaa 1,500 6.60%, 10/1/22....... 1,557,030
Dade Cnty. Hlth.
Facs. Auth.
Rev., Baptist Hosp.
of
Miami Proj.,
6.75%, 5/1/08, Ser.
Aaa 500 A, M.B.I.A......... 541,360
Dade Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge. G.N.M.A.,
7.75%, 9/1/22, Ser.
Aaa 945 C.................. 1,009,978
7.25%, 9/1/23, Ser.
Aaa 360 B.................. 375,048
Dade Cnty. Pub. Facs.
Rev.,
Jackson Mem. Hosp.,
Aaa 2,000 4.875%, 6/1/15,...... 1,733,800
Dade Cnty. Pub.
Impvt. Rev.,
J & K Seaport,
6.50%, 10/1/26,
Aaa 5,500 A.M.B.A.C.......... 5,682,105
Dade Cnty. Sch.
Dist.,
Gen. Oblig.
M.B.I.A.,
Aaa 1,235 5.00%, 8/1/11........ 1,137,324
Aaa 1,500 5.00%, 8/1/13........ 1,344,810
Dade Cnty. Wtr. & Swr. Sys. Rev.,
5.00%, 10/1/13,
Aaa 1,500 F.G.I.C............ 1,336,275
Duval Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge.,
8.375%, 12/1/14,
AAA* 660 G.N.M.A............ 701,936
Enterprise Cmnty.
Dev. Dist.,
Osceola Co., Spl.
Assmnt.,
6.00%, 5/1/10,
Aaa 2,320 M.B.I.A............ 2,374,752
Escambia Cnty. Hlth. Facs. Auth.
Rev., Baptist Hosp. Inc.,
8.70%, 10/1/14, Ser.
BBB+* 1,830 A.................. 2,004,490
Escambia Cnty. Poll. Ctrl., Rev.,
Champion Int'l. Corp. Proj.,
Baa1 3,500 6.90%, 8/1/22........ 3,546,620
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<S> <C> <C> <C>
Florida St Brd. of
Ed.,
Cap. Outlay, Pub.
Ed.,
Aa $ 2,500 5.20%, 6/1/23........ $ 2,198,500
7.25%, 6/1/23, Ser.
Aa 255D A.................. 284,893
7.25%, 6/1/23, Ser.
Aa 245 A.................. 267,533
Florida St. Broward
Cnty.,
Expwy. Auth.,
Aa 2,100@ 9.875%, 7/1/09....... 2,953,419
Florida St. Dept. of
Trans.,
7.20%, 7/1/11, Ser.
Aaa 1,000D A, A.M.B.A.C....... 1,125,260
Florida St. Gen.
Oblig.,
Ref. Dade Cnty.
Rd.,
Aa 1,500 5.125%, 7/1/13....... 1,362,840
Gainesville Gtd. Entitlement Rev.,
5.50%, 8/1/10,
Aaa 2,635 A.M.B.A.C.......... 2,591,865
Gainesville Utils. Sys. Rev.,
6.50%, 10/1/22, Ser.
Aa 2,150 A.................. 2,233,699
Hillsborough Cnty.
Ind. Dev. Auth.
Poll. Ctrl. Rev.,
Tampa Elec. Proj.,
8.00%, 5/1/22, Ser.
Aa2 1,750 9.................. 2,002,368
Hillsborough
Cnty.Solid
Waste & Res. Rec.,
5.70%, 10/1/08,
Aaa 1,000 M.B.I.A............ 998,060
Jacksonville Elec.
Auth. Rev.,
Bulk Pwr. Supply
Scherer,
Aaa 1,000D 6.75%, 10/1/21....... 1,095,760
Elec. Sys. 3-B,
Aa1 1,000 5.20%, 10/1/13....... 914,160
St. Johns Rvr.,
5.40%, 10/1/10, Ser.
Aa1 1,000 8.................. 953,330
St. Johns Rvr. Pwr.
Park,
Zero Coupon,
Aa1 3,000 10/1/10............ 1,211,670
Jacksonville Excise
Tax Rev.,
6.25%, 10/1/05,
Aaa 1,000 A.M.B.A.C.......... 1,071,430
Jacksonville Hlth.
Facs. Auth.
Hosp. Rev.,
Baptist Med. Ctr.
Proj.,
7.30%, 6/1/19, Ser.
Aaa 450 A, M.B.I.A......... 483,025
Daughters Of Charity,
5.00%, 11/15/15, Ser.
Aa $ 1,000 A.................. $ 836,450
Nat'l. Ben. Assoc.,
Baa1 1,825 7.00%, 12/1/22....... 1,757,840
St. Lukes Hosp. Assoc. Proj.,
AA+* 1,000 7.125%, 11/15/20..... 1,065,570
Jacksonville Wtr. & Swr. Dev.,
Rev., Suburban Utils.,
A2 1,000 6.75%, 6/1/22........ 1,037,460
Lake Cnty. Res. Rec.
Ind.,
Dev. Rev.,
5.95%, 10/1/13, Ser.
Baa 1,035 A.................. 941,850
Lee Cnty. Trans.
Facs. Rev.,
6.75%, 10/1/11,
Aaa 1,000 A.M.B.A.C.......... 1,068,370
Leon Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge.,
7.30%, 4/1/21, Ser.
Aaa 465 A, G.N.M.A......... 486,590
Martin Cnty.,
4.50%, 2/1/09,
Aaa 1,575 A.M.B.A.C.......... 1,377,023
Martin Cnty. Ind. Dev. Auth. Rev.,
Indiantown Cogen Proj.,
Baa3 1,200 7.875%, 12/15/25..... 1,275,240
Miami Hlth. Facs.
Auth. Hosp.
Rev., Mercy Hosp.,
A 1,000 8.125%, 8/1/11....... 1,095,820
Miramar Wstwtr. Impvt. Assmt.,
6.75%, 10/1/16,
Aaa 2,500 F.G.I.C............ 2,669,475
Okaloosa Cnty. Cap.
Impvt. Rev.,
Zero Coupon, 12/1/06,
Aaa 450 M.B.I.A............ 234,383
Orange Cnty. Hsg.
Fin. Auth.,
Mtge. Rev.,
7.375%, 9/1/24, Ser.
AAA* 420 A, G.N.M.A......... 443,293
MultiFam. Ashley Point Apts.,
BBB+* 1,200 6.85%, 10/1/16....... 1,213,296
BBB+* 855 7.10%, 10/1/24....... 869,433
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<S> <C> <C> <C>
Orange Cnty. Sales
Tax Rev.
5.375%, 1/1/24, Ser.
A1 $ 2,000 B.................. $ 1,811,640
Orlando & Orange Cnty. Expwy.
Auth. Rev.,
Aaa 1,000D 7.125%, 7/1/06....... 1,050,870
5.25%, 7/1/14,
Aaa 1,000 A.M.B.A.C.......... 917,960
Aaa 1,000D 7.25%, 7/1/14........ 1,053,350
A-* 1,750 5.95%, 7/1/23........ 1,667,120
Orlando Utils. Comn.,
Wtr. & Elec. Rev.,
6.75%, 10/1/17, Ser.
Aa 4,200 D.................. 4,670,190
Aa1 1,500 5.125%, 10/1/19...... 1,316,580
Aa 1,690 5.25%, 10/1/23....... 1,496,647
Palm Beach Cnty. Arpt. Sys. Rev.,
7.75%, 10/1/10,
Aaa 1,000 M.B.I.A............ 1,129,190
Palm Beach Cnty.
Hlth. Facs.
Auth. Rev.,
Good Samaritan
Hlth. Sys.,
A-* 2,000 6.30%, 10/1/22....... 1,953,840
Palm Beach Cnty. Ind.
Dev.
Rev., Regents Park
Boca Raton,
5.70%, 2/1/24,
AAA* 795 F.H.A.............. 737,776
Pasco Cnty. Sch.
Brd.,
Ctfs. of Part.,
Ser. A,
Aaa 1,000 6.40%, 8/1/06........ 1,052,330
Pensacola Hlth. Facs.
Auth.
Daughters of
Charity,
5.25%, 1/1/11,
Aaa 1,600 M.B.I.A............ 1,500,016
Polk Cnty. Hsg. Fin.
Auth.
Rev., Sngl. Fam.
Mtge.,
7.875%, 9/1/22,
Aaa 1,330 G.N.M.A............ 1,431,306
Polk Cnty. Sch. Brd.,
Ctfs of Part.,
Master Lease,
4.875%, 1/1/18,
Aaa 1,000 F.S.A.............. 858,780
Puerto Rico, Gen.
Oblig.,
7.382%, 7/1/20,
Aaa 3,000** F.S.A.............. 2,865,000
5.00%, 7/1/21,
Aaa 1,750 M.B.I.A............ 1,540,613
Puerto Rico Elec. Pwr. Auth. Rev.,
Baa1 $ 1,000 6.20%, 7/1/04........ $ 1,049,750
Puerto Rico Hsg. Fin. Corp. Rev.,
Sngl. Fam. Mtge. Rev.,
Baa 2,000 5.125%, 12/1/05...... 1,822,540
Baa 1,000 5.25%, 12/1/06....... 912,820
Puerto Rico Hwy. &
Trans. Auth. Rev.,
Baa1 2,000 5.00%, 7/1/02........ 1,914,480
6.625%, 7/1/12, Ser.
Baa1 750 V.................. 773,325
7.75%, 7/1/16, Ser.
Baa1 500D Q.................. 571,415
Puerto Rico Pub. Bldgs. Auth.,
Pub. Ed. & Hlth. Facs.,
7.875%, 7/1/16, Ser.
Aaa 1,000D H.................. 1,088,630
Puerto Rico Tel.
Auth. Rev.,
6.397%, 1/16/15, Ser.
I,
Aaa 2,250** M.B.I.A............ 2,044,687
St. Petersburg Hlth. Facs. Auth.
Rev., Allegheny Hlth. Prog.,
7.00%, 12/1/15,
Aaa 1,000 M.B.I.A............ 1,074,530
Tallahassee Cons. Util. Sys. Rev.,
Aa 2,000 6.20%, 10/1/19....... 2,045,020
Tampa Allegheny Hlth.
Sys.
Rev., M.B.I.A.,
St. Joseph Hosp.,
Aaa 2,535 6.70%, 12/1/07....... 2,735,138
St. Marys Hosp.,
Aaa 1,000 5.125%, 12/1/23...... 872,100
Tampa Gtd.
Entitlement Rev.,
7.05%, 10/1/07,
Aaa 2,000 A.M.B.A.C.......... 2,208,980
Venice Cap. Impvt.
Rev.,
Venice Hosp. Proj.,
A 1,500 5.75%, 12/1/24....... 1,350,720
Virgin Islands Pub. Fin. Auth.
Rev.,
Ref. Matching Loan Notes,
7.25%, 10/1/18, Ser.
NR 900 A.................. 929,394
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<S> <C> <C> <C>
Virgin Islands Territory,
Hugo Ins. Claims Fund
Prog.,
7.75%, 10/1/06, Ser.
NR $ 1,335 91................. $ 1,430,306
Volusia Cnty. Edl.
Fac.
Auth. Rev.,
AAA* 1,000 6.625%, 10/15/22..... 1,037,700
Volusia Cnty. Facs.
Auth. Rev.,
Mem. Hlth. Sys.
Proj.,
BBB+* 2,000D 8.25%, 6/1/20........ 2,319,800
------------
Total long-term
investments
(cost $133,929,242;
Note 5)............ 137,825,285
------------
SHORT-TERM INVESTMENTS--2.3%
Palm Beach Cnty. Wtr. & Swr. Rev.,
3.75%, 3/1/95,
VMIG1 1,600 F.R.D.D............ 1,600,000
Pinellas Cnty. Hlth. Facs. Auth.
Rev.,
Pooled Hosp. Loan Prog.,
3.75%, 3/1/95,
VMIG1 1,400 F.R.D.D............ 1,400,000
Puerto Rico Ind. Med.
& Environ. Facs.,
Ana G. Mendez Ed.
Foundation,
3.90%, 3/1/95, Ser.
A-1* 300 85, F.R.W.D........ 300,000
------------
Total short-term
investments
(cost
$3,300,000)........ 3,300,000
------------
Total Investments--99.7%
(cost
$137,229,242)...... 141,125,285
Other assets in
excess of
liabilities--0.3%... 458,802
------------
Net Assets--100%..... $141,584,087
------------
------------
</TABLE>
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Financial Housing Authority.
F.R.D.D.--Floating Rate (Daily) Demand Note.#
F.R.W.D.--Floating Rate (Weekly) Demand Note.#
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage
Association.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par or the
next date on which the rate of interest is
adjusted.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
@ Pledged as initial margin on financial futures
contracts.
* Standard & Poor's rating.
** Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate. The
rate shown is the rate at period end.
N.R.--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
----------------
<S>
<C>
Investments, at value (cost
$137,229,242).............................................. $141,125,285
Cash.........................................................................
.......... 16,703
Receivable for investments
sold........................................................ 3,424,516
Interest
receivable....................................................................
2,504,351
Receivable for Fund shares
sold........................................................ 320,357
Prepaid expenses and other
assets...................................................... 19,306
Due from
Distributors..................................................................
16,177
Due from
Manager.......................................................................
6,627
----------------
Total
assets.........................................................................
147,433,322
----------------
Liabilities
Payable for investments
purchased...................................................... 3,844,945
Payable for Fund shares
reacquired..................................................... 1,982,668
Due to broker - variation margin
payable............................................... 12,187
Dividends
payable......................................................................
8,135
Deferred trustees'
fees................................................................
1,300
----------------
Total
liabilities....................................................................
5,849,235
----------------
Net
Assets.......................................................................
...... $141,584,087
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 142,732
Paid-in capital in excess of
par..................................................... 143,512,713
----------------
143,655,445
Accumulated net realized loss on
investments......................................... (5,684,370)
Net unrealized appreciation on
investments........................................... 3,613,012
----------------
Net assets, February 28,
1995........................................................ $141,584,087
----------------
----------------
Class A:
Net asset value and redemption price per share
($126,513,899 / 12,754,109 shares of beneficial interest issued and
outstanding)... $ 9.92
Maximum sales charge (3.0% of offering
price)........................................ 0.31
----------------
Maximum offering price to
public..................................................... $10.23
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($4,811,400 / 484,981 shares of beneficial interest issued and
outstanding)........ $ 9.92
----------------
----------------
Class C:
Net asset value, offer price and redemption price per share
($10,258,788 / 1,034,070 shares of beneficial interest issued and
outstanding)..... $ 9.92
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
----------------
<S> <C>
Income
Interest............................. $4,409,251
----------
Expenses
Management fee, net waiver of
$292,670........................... 125,430
Distribution fee--Class A, net waiver
of $41,745......................... 20,121
Distribution fee--Class B............ 6,650
Distribution fee--Class C............ 38,464
Custodian's fees and expenses........ 39,000
Transfer agent's fees and expenses... 25,000
Reports to shareholders.............. 19,500
Registration fees.................... 14,000
Audit fee............................ 5,300
Legal fees........................... 5,000
Trustees' fees....................... 1,600
Miscellaneous........................ 7,833
----------
Total expenses..................... 307,898
Less: expense subsidy (Note 4)....... (119,688)
----------
Net expenses....................... 188,210
----------
Net investment income.................. 4,221,041
----------
Realized and Unrealized Gain
(Loss) on Investments
Net realized loss on:
Investment transactions.............. (4,952,891)
Financial futures contract
transactions....................... (68,160)
----------
(5,021,051)
----------
Net change in unrealized
appreciation/(depreciation) on:
Investments.......................... 5,290,305
Financial futures contracts.......... (368,812)
----------
4,921,493
----------
Net loss on investments................ (99,558)
----------
Net Increase in Net Assets
Resulting from Operations.............. $4,121,483
----------
----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Net investment income... $ 4,221,041 $ 8,768,570
Net realized loss on
investment
transactions.......... (5,021,051) (8,676)
Net change in unrealized
appreciation
(depreciation) of
investments........... 4,921,493 (11,870,836)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 4,121,483 (3,110,942)
------------ ------------
Dividends and
distributions (Note 1)
Dividends to
shareholders from net
investment income
Class A............... (3,859,793) (8,305,093)
Class B............... (78,462) (582)
Class C............... (282,786) (462,895)
------------ ------------
(4,221,041) (8,768,570)
------------ ------------
Distributions to
shareholders from net
realized gains on
investments
Class A............... -- (2,821,851)
Class B............... -- --
Class C............... -- (142,331)
------------ ------------
-- (2,964,182)
------------ ------------
Series share transactions
(Note 6)
Net proceeds from shares
sold.................. 16,883,210 35,379,732
Net asset value of
shares issued in
reinvestment of
dividends and
distributions......... 1,877,776 5,323,495
Cost of shares
reacquired............ (23,692,719) (31,275,509)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions.......... (4,931,733) 9,427,718
------------ ------------
Total decrease............ (5,031,291) (5,415,976)
Net Assets
Beginning of period....... 146,615,378 152,031,354
------------ ------------
End of period............. $141,584,087 $146,615,378
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-11-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund, (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Florida Series (the ``Series'') commenced
investment operations on December 28, 1990. The Series is non-diversified and
seeks to achieve its investment objective of providing the maximum amount of
income that is exempt from federal income taxes with the minimum of risk, and
investing in securities which will enable its shares to be exempt from the
Florida intangibles tax by investing in ``investment grade'' tax-exempt
securities whose ratings are within the four highest ratings categories by a
nationally recognized statistical rating organization or, if not rated, are of
comparable quality. The ability of the issuers of the securities held by the
Series to meet their obligations may be affected by economic developments in a
specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its
existing portfolio securities, or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Options: The Series may either purchase or write options in order to hedge
against adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Series currently owns or intends to purchase.
When the Series purchases an option, it pays a premium and an amount equal to
that premium is recorded as an investment. When the Series writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Series
realizes a gain or loss to the extent of the premium received or paid. If an
option is exercised, the premium received or paid is an adjustment to the
proceeds from the sale or the cost basis of the purchase in determining whether
the Series has realized a gain or loss. The difference between the premium and
the amount received or paid on effecting a closing purchase or sale transaction
is also treated as a realized gain or loss. Gain or loss on purchased options
is
included in net realized gain (loss) on investment transactions. Gain or loss
on
written options is presented separately as net realized gain (loss) on written
option transactions.
The Series, as writer of an option, has no control over whether the
underlying securities or currencies may be sold
-12-
<PAGE>
(called) or purchased (put). As a result, the Series bears the market risk of
an
unfavorable change in the price of the security or currency underlying the
written option. The Series, as purchaser of an option, bears the risk of the
potential inability of the counterparties to meet the terms of their contracts.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason and because substantially all of the Series' gross income
consists of tax-exempt interest, no federal income tax provision is required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Deferred Organization Expenses: The Series incurred approximately $32,000 in
organization and initial registration expenses. Such amount has been deferred
and is being amortized over a period of 60 months ending December, 1995.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series. For the
four months ended December 31, 1994, PMF waived 60% of its management fee. For
the two months ended February 28, 1995, PMF waived 70% of its management fee.
The amount of fees waived for the six months ended February 28, 1995 amounted
to
$292,670 ($.02 per share for Class A, B and C shares; .43% of average net
assets, as annualized). The Series is not required to reimburse PMF for such
waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and .75 of 1%, of the average daily net assets of the Class A, B and C
shares, respectively. With respect to the Class A Plan, PMFD voluntarily agreed
to waive its distribution fee, currently limited to .10 of 1% of average net
assets for the period September 1, 1994 through December 31, 1994. Effective
January 1, 1995, PMFD eliminated its waiver. The amount of distribution fees
waived by PMFD was $41,745 ($.008 per share for Class A shares; .07% of average
net assets) for the six months ended February 28, 1995. Such expenses under the
Class A, B and C Plans were .03 of 1%, .50 of 1% and .75 of 1% of the average
daily net assets of Class A, B and C shares, respectively, as annualized, for
the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $102,670 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
-13-
<PAGE>
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $21,400 for the services of PMFS. As of February 28, 1995,
approximately $3,500 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Expense PMF voluntarily subsidized all
Subsidy operating expenses (except
management and distribution fees) of the Class A,
Class B and Class C shares of the Series until further notice. For the six
months ended February 28, 1995, PMF subsidized $119,688 ($.01 per share for
Class A, B and C shares; .18% of average net assets) of the Series' expenses.
The Series is not required to reimburse PMF for such subsidy.
Note 5. Portfolio Purchases and sales of port-
Securities folio securities, excluding
short-term investments, for the six months ended
February 28, 1995 were $51,639,237 and $57,607,894, respectively.
The cost basis of investments for federal income tax purposes as of February
28, 1995 was $137,230,492 and, accordingly, net unrealized appreciation
$3,894,793 (gross unrealized appreciation--$5,649,517; gross unrealized
depreciation--$1,754,724).
At February 28, 1995 the Series sold 30 financial futures contracts on the
Municipal Bond Index expiring in March 1995. The value at disposition of such
contracts was $2,437,594. The value of such contracts on February 28, 1995 was
$2,720,625, thereby resulting in an unrealized loss of $283,031.
Note 6. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares, which prior
to August 1, 1994 were known as D shares, are sold with a contingent deferred
sales charge of 1% during the first year. Class B shares will automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase commencing in February 1995. Offering of Class B shares commenced on
August 1, 1994.
The Fund has authorized an unlimited number of shares of beneficial interest
at $.01 par value per share. Transactions in shares of beneficial interest for
the six months ended February 28, 1995 and the year ended August 31, 1994 were
as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28,
1995:
Shares sold................... 1,165,082 $ 11,016,157
Shares issued in reinvestment
of dividends................ 175,358 1,666,228
Shares reacquired............. (2,191,046) (20,758,240)
---------- ------------
Net decrease in shares
outstanding................. (850,606) $ (8,075,855)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 2,274,149 $ 24,062,897
Shares issued in reinvestment
of dividends and
distributions............... 475,125 4,935,129
Shares reacquired............. (2,838,050) (29,205,030)
---------- ------------
Net decrease in shares
outstanding................. (88,776) $ (207,004)
---------- ------------
---------- ------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28,
1995
Shares sold................... 548,800 $ 5,193,275
Shares issued in reinvestment
of dividends................ 3,330 31,715
Shares reacquired............. (125,847) (1,202,951)
---------- ------------
Net increase in shares
outstanding................. 426,283 $ 4,022,039
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 58,689 $ 579,300
Shares issued in reinvestment
of dividends and
distributions............... 24 235
Shares reacquired............. (15) (150)
---------- ------------
Net increase in shares
outstanding................. 58,698 $ 579,385
---------- ------------
---------- ------------
</TABLE>
- ------------------
* Commencement of offering of Class B shares.
<TABLE>
<CAPTION>
Class C Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28,
1995:
Shares sold................... 70,114 $ 673,778
Shares issued in reinvestment
of dividends................ 18,923 179,833
Shares reacquired............. (183,179) (1,731,528)
---------- ------------
Net decrease in shares
outstanding................. (94,142) $ (877,917)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 1,004,802 $ 10,737,535
Shares issued in reinvestment
of dividends................ 37,628 388,131
Shares reacquired............. (202,212) (2,070,329)
---------- ------------
Net increase in shares
outstanding................. 840,218 $ 9,055,337
---------- ------------
---------- ------------
</TABLE>
-15-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
Class B
- --------------------------------------------------------------
- --------------------------
December 28, August 1,
Six Months
1990* Six Months 1994DDD
Ended Years Ended August 31,
Through Ended through
February 28, ------------------------------
August 31, February 28, August 31,
1995 1994 1993 1992
1991 1995 1994
------------ -------- -------- --------
------------ ------------ ----------
<S> <C> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 9.91 $ 10.87 $ 10.27 $ 9.76
$ 9.55 $ 9.91 $ 9.95
------------ -------- -------- --------
------------ ------------ ----------
Income from investment oper-
ations
Net investment incomeD...... .30 .59 .57 .65
.44 .28 .04
Net realized and unrealized
gain (loss) on
investment transactions... .01 (.76) .73 .51
.21 .01 (.04)
------------ -------- -------- --------
------------ ------------ ----------
Total from investment
operations.............. .31 (.17) 1.30 1.16
.65 .29 --
------------ -------- -------- --------
------------ ------------ ----------
Less distributions
Dividends from net
investment income......... (.30) (.59) (.57) (.65)
(.44) (.28) (.04)
Distributions from net
realized gains............ -- (.20) (.13) --
-- -- --
------------ -------- -------- --------
------------ ------------ ----------
Total distributions....... (.30) (.79) (.70) (.65)
(.44) (.28) (.04)
------------ -------- -------- --------
------------ ------------ ----------
Net asset value, end of
period.................... $ 9.92 $ 9.91 $ 10.87 $ 10.27
$ 9.76 $ 9.92 $ 9.91
------------ -------- -------- --------
------------ ------------ ----------
------------ -------- -------- --------
------------ ------------ ----------
TOTAL RETURN#:.............. 3.32% (1.69)% 13.78% 12.26%
6.90% 3.06% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $126,514 $134,849 $148,900 $104,335
$63,929 $4,811 $582
Average net assets (000).... $124,758 $146,489 $123,820 $ 82,893
$41,528 $2,682 $118
Ratios to average net
assetsD/@:
Expenses, including
distribution fees....... .19%** .20% .20% 0.09%
0 .69%** .70%**
Expenses, excluding
distribution fees....... .15%** .20% .20% 0.09%
0 .15%** .20%**
Net investment income..... 6.24%** 5.67% 5.94% 6.41%
6.68%** 5.90%** 6.21%**
Portfolio turnover.......... 40% 75% 68% 56%
39% 40% 75%
<CAPTION>
Class C
----------------------------------
July
26,
1993DD
Six Months Year Through
Ended Ended August
February 28, August 31,
1995 31, 1994 1993
------------ -------- ------
<S> <<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 9.91 $ 10.87 $10.58
------------ -------- ------
Income from investment oper-
ations
Net investment incomeD...... .26 .48 .03
Net realized and unrealized
gain (loss) on
investment transactions... .01 (.76) .29
------------ -------- ------
Total from investment
operations.............. .27 (.28) .32
------------ -------- ------
Less distributions
Dividends from net
investment income......... (.26) (.48) (.03)
Distributions from net
realized gains............ -- (.20) --
------------ -------- ------
Total distributions....... (.26) (.68) (.03)
------------ -------- ------
Net asset value, end of
period.................... $ 9.92 $ 9.91 $10.87
------------ -------- ------
------------ -------- ------
TOTAL RETURN#:.............. 2.94% (2.40)% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $10,259 $11,185 $3,132
Average net assets (000).... $10,342 $ 9,280 $1,038
Ratios to average net
assetsD/@:
Expenses, including
distribution fees....... .94%** .95% .95%**
Expenses, excluding
distribution fees....... .15%** .20% .20%**
Net investment income..... 5.51%** 4.99% 5.19%**
Portfolio turnover.......... 40% 75% 68%
</TABLE>
<TABLE>
<C> <S>
- ---------------
* Commencement of investment operations.
** Annualized.
D Net of expense subsidy and fee waiver.
DD Commencement of offering of Class C shares. Prior to August 1,
1994, Class C shares were called Class D
shares.
DDD Commencement of offering of Class B shares.
# Total return does not consider the effects of sales loads.
Total return is calculated assuming a purchase
of shares on the first day and a sale on the last day of each
period reported and includes reinvestment
of dividends and distributions. Total returns for periods of
less than a full year are not annualized.
@ Because of the recent commencement of its offering, the ratios
for the Class B shares are not necessarily
comparable to that of Class A or C shares and are not
necessarily indicative of future ratios.
</TABLE>
See Notes to Financial Statements.
-16-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M507
74435M606 MF148E2
74435M614 (LOGO) Cat. #4443533
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- -------------------------
(ICON)
Georgia Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued tax-exempt bonds have become scarce. We are pleased to
report that your Prudential Municipal Series Fund -- Georgia Series has
earned a positive total return, performing better than the average Georgia
municipal bond fund as measured by Lipper Analytical Services, Inc.
Less Means More...
For You!
Prudential mutual fund shareholders will be
seeing total returns increase in the months
to come, thanks to a reduction in Fund management
expenses. Prudential Mutual Funds lowered the
rate on January 1, 1995, to 0.45% from 0.50%.
It is our way of showing you that we appreciate
your business and that we remain committed to
managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.1% 1.2% 41.9% N/A 42.5%
Class B 2.8% 0.7% 38.9% 118.9% 133.2%
Class C 2.6% N/A N/A N/A 2.5%
Lipper GA
Muni. Avg3 2.4% 0.4% 42.2% 118.7% 129.8%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 3.3% 6.8% N/A 6.6%
Class B 1.0% 6.9% 8.2% 8.5%
Class C N/A N/A N/A 2.3%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management, Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3%
for Class A shares. Class B shares are subject to a contingent deferred
sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares
have a 1% CDSC for one year. Class B shares will automatically convert
to Class A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/25/84 Class B; 8/1/94 Class C.
3Lipper average returns are for 26 funds for six months, 22 funds for one
year, 6 funds for five years, 1 funds for 10 years, and 1 funds since
inception of Class B shares on 9/25/84.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Georgia state and federal income
taxes consistent with preservation of capital. Certain shareholders may be
subject to the federal alternative minimum tax. The Series will invest
primarily in Georgia state, municipal and local government obligations and
obligations of U.S. territories (such as Puerto Rico, the U.S. Virgin Islands
and Guam), the income from which is also exempt from federal and Georgia
state income taxes.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds
rate (the interbank overnight lending rate), investors began to believe that
the economy was showing signs of slowing. As a result, long-term interest
rates in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In
fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below its
1994 high -- 7.4% recorded on November 17, 1994.
On the Hill:
In 1995, Congress will most likely consider an
initiative that would restore full income
tax deductibility for individual retirement
account (IRA) contributions for middle-income
wage earners. In addition, Congress may also
consider the creation of a new tax-deferred
savings account called the "American Dream Savings
Account." Prudential Mutual Funds supports both
of these proposals, and we urge you to share
your opinion with your Congressional representatives.
We will keep you updated on these initiatives as
they make their way through the legislative process.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and
those with lower coupons, sometimes called premium and discount bonds.
The higher yielding premium bonds help cushion the impact of rising
interest rates while the lower coupon or discount bonds offer price
appreciation potential when interest rates decline.
-2-
<PAGE>
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many
issuers reluctant to borrow money. In fact, the Revenue Bond Index
rose dramatically to 6.9% from 5.5% -- nearly one and a half percentage
points. As a result, the level of new bonds issued nationwide fell by
44% and in Georgia by 38%.
As bond prices fell late last year, the Series looked for bargains, and
then put its cash to work, reducing cash as a percentage of assets to
virtually zero from 4%. In addition, the Series sold its housing bonds,
because they were expected to decline in value because supply would
increase, and purchased revenue bonds in the health care sector because
supply of hospital bonds was decreasing.
A Tax Reminder...
As a result of the Revenue Reconciliation Act
of 1993, it is possible that this year you may
have some taxable income from your normally
tax-exempt municipal bond fund. The law stipulates
that the portion of any gain realized on the sale
or retirement of a tax-exempt bond purchased at
a market discount to its face value may be taxed
as ordinary income. The law affects bonds
purchased after April 30, 1993.
Georgia: A Winner Prepares for the 1996 Olympics.
Georgia is among the states with the highest credit ratings, and it
continues to enjoy stable economic growth. Its economy is well diversified
among the manufacturing, trade and service sectors. Much of the state's
growth has been focused on Atlanta, where the 1996 Olympic Games will
be played.
The state's budget has been quite stable as well. A lottery approved by
voters in 1992 was so successful that it netted $360 million in 1994, far
more than double the $139 million projected. The proceeds will help finance
education. The state's budget is balanced, and is healthy enough to fund
new programs and prisons. In fact, income tax cuts and the exemption of
food from the sales tax may be considered this year. This favorable budget
outlook makes bonds that can be repaid with state appropriations
more attractive.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last
six months. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.We expect long-term
interest rates to stabilize in the year ahead, as investors continue to
gain confidence that the Federal Reserve is satisfied that it has inflation
under control. In addition, we believe the supply of tax-exempt municipals
will continue to contract, which should also provide an additional reward
to investors by supporting prices.
-3-
<PAGE>
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Georgia Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Fund Update
Starting in February 1995, Class B shareholders
may have begun to notice a change in their
Fund holdings. That's when Class B shares
began to automatically convert to Class A
shares, on a quarterly basis, approximately
seven years after purchase. As you may know,
Class A shares generally carry lower annual
distribution expenses than Class B shares.
Accordingly, after conversion you will earn
higher total returns on your investment than
you would have as a Class B shareholder.
Following the May cycle, conversions of eligible
Class B shares and special exchanges of Class B
and C shares will take place each calendar quarter
(March, June, September and December) starting in
September 1995.
Sincerely,
Lawrence C. McQuade
President
Marie Conti
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the
bond market -- in taxable or tax-exempt securities -- you might want
to consider some of the following points. We talked with Prudential
Mutual Funds chief fixed income strategist Dennis Bushe about why bonds
and bond mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between
2.5% and 3.0%. Today's investors receive over 4.5% in total inflation-
adjusted, annualized total return. Of course, these numbers are just for
illustration, but they show how much higher interest rates improve bond
total returns when inflation is only 2.7%, as measured by the Consumer
Price Index. And beating inflation is one primary goal of long-term
investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of
course you can avoid virtually all credit risk in a government bond fund,
but some investors need higher income than Uncle Sam provides. Bond funds
help manage this risk, and that may be especially important in 1995. First
of all, if the U.S. economy is beginning to slow down, as many economists
believe, then credit quality is a concern. A credit team becomes very
valuable, carefully selecting bonds in different sectors and industries
for bond portfolios. In addition, few individual investors have the
resources or clout to continually monitor companies, unearth possible
credit problems before they surface, and negotiate favorable terms with
troubled issuers -- a bond fund does. Finally, the diversification of
a bond fund may help investors avoid wide price swings if one holding
does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
GEORGIA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.2%
Atlanta, Gen. Oblig.,
Aa $ 585 7.10%, 12/1/10.......... $ 644,325
Atlanta Urban Res. Fin.
Auth.,
Clark Atlanta Univ.
Dorm. Proj.,
NR 935D 9.25%, 6/1/10........... 1,131,032
Atlanta Wtr. & Swr.
Rev.,
Aa 500 4.75%, 1/1/23........... 407,210
Burke Cnty. Dev. Auth.,
Georgia Pwr. Co.,
Aaa 500 6.625%, 10/1/24......... 512,945
Clarke Cnty. Sch. Dist.,
Aaa 425 5.50%, 7/1/08,
F.G.I.C............... 418,260
Clayton Cnty. Wtr.
Auth.,
Wtr. & Sewage Rev.,
Aaa 500D 6.65%, 5/1/12........... 548,880
Cobb Cnty. Kennestone
Hosp.,
Auth. Rev.,
5.00%, 4/1/24, Ser. A,
M.B.I.A............... 632,895
Aaa 750
Columbus Hosp. Auth.
Rev.,
Antic. Cert., St.,
Francis Hosp.,
Aaa 500D 8.25%, 1/1/07, B.I.G.... 540,000
DeKalb Cnty. Wtr. & Swr.
Rev.,
Aa 750 5.25%, 10/1/23.......... 666,030
DeKalb Private Hosp.
Auth. Rev.,
Wesley Svcs. Inc.
Proj.,
Aa3 500 8.25%, 9/1/15........... 526,200
Douglasville-Douglas
Cnty.
Wtr. & Swr. Auth.
Rev.,
Aaa 750 5.625%, 6/1/15,
A.M.B.A.C............. 719,730
Forsyth Cnty. Sch. Dist.
Dev. Rev.,
A1 500 6.75%, 7/1/16, Ser. A... 548,570
Fulco Hosp. Auth. Rev.,
Antic.
Cert., Baptist Hlth.,
Baa1 750 6.375%, 9/1/22, Ser.
B..................... 648,465
Shepherd Spinal Ctr.
Proj.,
Aa3 750 7.75%, 10/1/08, Ser.
A..................... 790,140
Fulton Cnty. Bldg. Auth. Rev.,
Human Res. & Gov't. Facs. Proj.,
Aa $ 250 7.00%, 1/1/10........... $ 269,790
Judicial Ctr. Proj.,
Aa 1,325 Zero Coupon, 1/1/11..... 524,196
Fulton Cnty. Sch. Dist.
Rev.,
Lindbrook Square
Fndtn.,
Aa 750@ 6.375%, 5/1/17.......... 804,315
Georgia Metro. Atl.
Rapid Trans. Auth.
Rev.,
Aaa 500 6.90%, 7/1/20........... 536,155
Georgia Mun. Elec. Auth.
Pwr.
Rev. Ref.,
A1 250 5.30%, 1/1/07, Ser. Z... 234,890
A1 250 6.00%, 1/1/14, Ser. A... 246,095
A1 475 6.25%, 1/1/17, Ser. B... 485,222
Georgia Mun. Gas Auth.
Rev.,
Southern Storage Gas
Proj.,
A-* 600 6.40%, 7/1/14........... 593,370
Green Cnty. Dev. Auth.,
Ind. Park Rev.,
NR 635 6.875%, 2/1/04.......... 688,442
Hancock County Georgia,
AA* 500 6.70%, 4/1/15........... 518,580
Henry Cnty. Sch. Dist.
Dev. Rev.,
A 750 6.45%, 8/1/11, Ser. A... 787,297
Houston Cnty. Georgia
Sch. Dist.,
Intergovernmental
Contract Trust,
Aaa 250 6.00%, 3/1/14,
M.B.I.A............... 251,598
Marietta Dev. Auth.
Rev.,
Life Coll. Inc. Proj.,
Aaa 500 7.20%, 12/1/09,
C.G.I.C............... 538,460
Peach Cnty. Sch. Dist.,
Aaa 500 6.40%, 2/1/19,
M.B.I.A............... 515,970
Puerto Rico Comnwlth.,
Gen Oblig.,
Aaa 750 5.50%, 7/1/13,
M.B.I.A............... 725,550
Aaa 450DD 7.382%, 7/1/20,
F.S.A................. 429,750
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Savannah Hosp. Auth.
Rev.,
Candler Hosp.,
Baa $ 500 7.00%, 1/1/23........... $ 481,025
Toombs Cnty. Hosp.,
Dr. John Meadows Mem.
Hosp.,
BBB* 500 7.00%, 12/1/17.......... 478,055
Virgin Islands Pub. Fin.
Auth.
Rev., Hwy. Trans.
Trust Fund,
NR 200 7.25%, 10/1/18, Ser.
A..................... 206,532
-----------
Total Investments--98.2%
(cost $17,427,804; Note
4).................... 18,049,974
Other assets in excess
of
liabilities--1.8%..... 324,032
-----------
Net Assets--100%........ $18,374,006
-----------
-----------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
* Standard & Poor's rating.
@ Pledged as initial margin on futures contracts.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate.
The rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of Moody's and Standard & Poor's ratings.
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$17,427,804)............................................... $18,049,974
Cash.........................................................................
.......... 41,387
Interest
receivable....................................................................
305,359
Deferred expenses and other
assets..................................................... 594
-----------------
Total
assets.......................................................................
18,397,314
-----------------
Liabilities
Management fee
payable.................................................................
6,288
Dividends
payable......................................................................
5,967
Distribution fee
payable...............................................................
4,538
Due to broker-variation
margin......................................................... 2,250
Accrued
expenses.......................................................................
2,186
Deferred trustee's
fees................................................................
1,300
Payable for Series shares
reacquired................................................... 779
-----------------
Total
liabilities..................................................................
23,308
-----------------
Net
Assets.......................................................................
...... $18,374,006
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 16,369
Paid-in capital in excess of
par..................................................... 17,840,278
-----------------
17,856,647
Accumulated net realized loss on
investments......................................... (74,248)
Net unrealized appreciation on
investments........................................... 591,607
-----------------
Net assets, February 28,
1995........................................................ $18,374,006
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($10,012,285 / 891,724 shares of beneficial interest issued and
outstanding)....... $11.23
Maximum sales charge (3.0% of offering
price)........................................ .35
-----------------
Maximum offering price to
public..................................................... $11.58
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($8,361,519 / 745,122 shares of beneficial interest issued and
outstanding)........ $11.22
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($202 / 18 shares of beneficial interest issued and
outstanding)................... $11.22
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28, 1995
-----------------
<S> <C>
Income
Interest........................... $ 627,125
-----------------
Expenses
Management fee (net of fee waiver
of $1,456)......................... 45,073
Distribution fee--Class A.......... 1,063
Distribution fee--Class B.......... 41,213
Distribution fee--Class C.......... 1
Custodian's fees and expenses...... 32,000
Registration fees.................. 14,000
Reports to shareholders............ 12,000
Transfer agent's fees and
expenses........................... 8,000
Audit fee.......................... 5,300
Legal fees......................... 5,000
Trustees' fees..................... 1,600
Miscellaneous...................... 2,627
-----------------
Total expenses................... 167,877
Less: expense subsidy (Note 5)....... (6,080)
-----------------
Net expenses....................... 161,797
-----------------
Net investment income................ 465,328
-----------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions............ (70,082)
Financial futures transactions..... 68,524
-----------------
(1,558)
-----------------
Net change in unrealized appreciation
on:
Investments........................ (8,530)
Financial futures contracts........ (47,719)
-----------------
(56,249)
-----------------
Net loss on investments.............. (57,807)
-----------------
Net Increase in Net Assets
Resulting from Operations............ $ 407,521
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ -----------
<S> <C> <C>
Operations
Net investment income... $ 465,328 $ 982,702
Net realized loss on
investment
transactions.......... (1,558) (3,540)
Net change in unrealized
appreciation of
investments........... (56,249) (1,407,842)
------------ -----------
Net increase (decrease)
in net assets
resulting from
operations............ 407,521 (428,680)
------------ -----------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A............... (60,081) (55,820)
Class B............... (405,243) (926,882)
Class C............... (4) --
------------ -----------
(465,328) (982,702)
------------ -----------
Distributions from net
realized gains
Class A............... -- (15,680)
Class B............... -- (302,050)
------------ -----------
-- (317,730)
------------ -----------
Series share transactions
(net of
share conversion) (Note
6)
Net proceeds from shares
sold.................. 565,062 3,261,528
Net asset value of
shares issued in
reinvestment of
dividends and
distributions......... 302,268 863,092
Cost of shares
reacquired............ (3,138,928) (3,609,847)
------------ -----------
Net increase (decrease)
in net assets from
Series share
transactions.......... (2,271,598) 514,773
------------ -----------
Total decrease............ (2,329,405) (1,214,339)
Net Assets
Beginning of period....... 20,703,411 21,917,750
------------ -----------
End of period............. $ 18,374,006 $20,703,411
------------ -----------
------------ -----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Georgia Series (the ``Series'') commenced
investment operations in September, 1984. The Series is diversified and seeks
to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities whose ratings are
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting pol-
icies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its
existing portfolio securities, or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
-10-
<PAGE>
<PAGE>
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a manage-
ment agreement with Prudential Mutual Fund
Management, Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility
for all investment advisory services and supervises the subadviser's performance
of such services. PMF has entered into a subadvisory agreement with The
Prudential Investment Corporation (``PIC''); PIC furnishes investment advisory
services in connection with the management of the Fund. PMF pays for the cost
of
the subadviser's services, the compensation of officers of the Fund, occupancy
and certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$1,456 ($0.001 per share). The Series is not required to reimburse PMF for such
waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $4,400 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $71,100 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $7,000 for the services of PMFS. As of February 28, 1995,
approximately $1,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $1,497,595 and $3,506,800, respectively.
The cost basis of investments for federal income tax purposes at February 28,
1995 was substantially the same as the basis for financial reporting purposes
and, accordingly, net unrealized appreciation of investments for federal income
tax purposes is $622,170 (gross unrealized appreciation--$907,300, gross
unrealized depreciation--$285,130).
At February 28, 1995, the Series sold 6 financial futures contracts on the
Municipal Bond Index expiring in March 1995. The value at disposition of such
contracts was $593,250. The value of such contracts on February 28, 1995 was
$623,813, thereby resulting in an unrealized loss of $30,563.
The Fund elected to treat net capital losses of approximately $45,000
incurred in the ten month period ended August 31, 1994 as having occurred in the
current fiscal year.
Note 5. Expense Beginning January 1, 1995,
Subsidy PMF has agreed to subsidize
expenses so that total Series' operating expenses
do not exceed 1.35%, 1.75% and 2.00% of the average daily net assets of the
Class A, Class
-11-
<PAGE>
B and Class C shares, respectively. Prior to January 1, 1995, PMF subsidized
1.40%, 1.80% and 2.05% of the average daily net assets of the Class A, Class B
and Class C shares, respectively. For the six months ended February 28, 1995,
PMF subsidized $6,080 ($0.004 per share; 0.06% of average net assets) of the
Series' expenses.
Note 6. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Commencing
in February 1995, Class B shares automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six months ended
February 28, 1995 and the fiscal year ended August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 4,728 $ 50,728
Shares issued in reinvestment
of
dividends................... 3,314 36,425
Shares reacquired............. (22,535) (238,098)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (14,493) (150,945)
Shares issued upon conversion
from Class B................ 800,662 8,855,319
---------- ------------
Net increase in shares
outstanding................. 786,169 $ 8,704,374
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 40,971 $ 479,185
Shares issued in reinvestment
of
dividends and
distributions............... 3,476 40,440
Shares reacquired............. (30,202) (352,696)
---------- ------------
Net increase in shares
outstanding................. 14,245 $ 166,929
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 47,971 $ 514,334
Shares issued in reinvestment
of
dividends................... 24,776 265,841
Shares reacquired............. (271,182) (2,900,830)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (198,435) (2,120,655)
Shares reacquired upon
conversion into Class A..... (800,662) (8,855,319)
---------- ------------
Net decrease in shares
outstanding................. (999,097) $(10,975,974)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 237,894 $ 2,782,143
Shares issued in reinvestment
of
dividends and
distributions............... 70,614 822,652
Shares reacquired............. (281,823) (3,257,151)
---------- ------------
Net increase in shares
outstanding................. 26,685 $ 347,644
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares issued in reinvestment
of
dividends................... -- $ 2
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 18 $ 200
---------- ------------
---------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-12-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------------
January 22,
Six Months
1990DD
Ended Year
Ended August 31, Through
February 28,
- --------------------------------------- August 31,
1995 1994
1993 1992 1991 1990
------------ ------
- ------ ------ ------ -----------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.19 $12.12
$11.69 $11.39 $11.05 $ 11.26
------------ ------
- ------ ------ ------ -----------
Income from investment operations
Net investment income........................ .28D .57
.62 .65D .64 .41
Net realized and unrealized gain (loss) on
investment
transactions............................... .04 (.76)
.85 .54 .43 (.21)
------------ ------
- ------ ------ ------ -----------
Total from investment operations........... .32 (.19)
1.47 1.19 1.07 .20
------------ ------
- ------ ------ ------ -----------
Less distributions
Dividends from net investment income......... (.28) (.57)
(.62) (.65) (.64) (.41)
Distributions from net realized gains........ -- (.17)
(.42) (.24) (.09) --
------------ ------
- ------ ------ ------ -----------
Total distributions........................ (.28) (.74)
(1.04) (.89) (.73) (.41)
------------ ------
- ------ ------ ------ -----------
Net asset value, end of period............... $ 11.23 $11.19
$12.12 $11.69 $11.39 $ 11.05
------------ ------
- ------ ------ ------ -----------
------------ ------
- ------ ------ ------ -----------
TOTAL RETURN#:............................... 3.06% (1.58)%
13.28% 10.84% 10.03% 1.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 10,012 $1,182
$1,107 $ 177 $ 102 $ 83
Average net assets (000)..................... $ 2,144 $1,134 $
475 $ 155 $ 98 $ 21
Ratios to average net assets:
Expenses, including distribution fees...... 1.38%*/D 1.30%
1.27% 1.24%D 1.70% 1.46%*
Expenses, excluding distribution fees...... 1.28%*/D 1.20%
1.17% 1.14%D 1.60% 1.36%*
Net investment income...................... 5.33%*/D 4.92%
5.29% 5.68%D 5.67% 5.92%*
Portfolio turnover........................... 8% 27%
41% 58% 33% 49%
- ---------------
</TABLE>
* Annualized.
D Net of expense subsidy/fee waiver.
DD Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
See Notes to Financial Statements.
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
GEORGIA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- -------------------------------------------------------
1995 1994
1993 1992 1991 1990
------------ -------
- ------- ------- ------- -------
<S> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.19 $ 12.12
$ 11.69 $ 11.39 $ 11.05 $ 11.23
------------ -------
- ------- ------- ------- -------
Income from investment operations
Net investment income........................ .26D .52
.57 .61D .60 .65
Net realized and unrealized gain (loss) on
investment
transactions............................... .03 (.76)
.85 .54 .43 (.18)
------------ -------
- ------- ------- ------- -------
Total from investment operations........... .29 (.24)
1.42 1.15 1.03 .47
------------ -------
- ------- ------- ------- -------
Less distributions
Dividends from net investment income......... (.26) (.52)
(.57) (.61) (.60) (.65)
Distributions from net realized gains........ -- (.17)
(.42) (.24) (.09) --
------------ -------
- ------- ------- ------- -------
Total distributions........................ (.26) (.69)
(.99) (.85) (.69) (.65)
------------ -------
- ------- ------- ------- -------
Net asset value, end of period............... $ 11.22 $ 11.19
$ 12.12 $ 11.69 $ 11.39 $ 11.05
------------ -------
- ------- ------- ------- -------
------------ -------
- ------- ------- ------- -------
TOTAL RETURN#:............................... 2.77% (1.98)%
12.83% 10.40% 9.57% 4.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 8,362 $19,522
$20,811 $17,702 $17,722 $20,310
Average net assets (000)..................... $ 16,622 $20,492
$18,437 $17,436 $19,008 $22,614
Ratios to average net assets:
Expenses, including distribution fees...... 1.78%*/D 1.70%
1.67% 1.64%D 2.08% 1.67%
Expenses, excluding distribution fees...... 1.28%*/D 1.20%
1.17% 1.14%D 1.58% 1.22%
Net investment income...................... 4.93%*/D 4.52%
4.89% 5.28%D 5.36% 5.85%
Portfolio turnover........................... 8% 27%
41% 58% 33% 49%
- ---------------
<CAPTION>
Class C
---------------------------
August 1,
Six Months 1994DD
Ended Through
February 28, August 31,
1995 1994
------------ ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.19 $ 11.23
------------ ----------
Income from investment operations
Net investment income........................ .24D .04
Net realized and unrealized gain (loss) on
investment
transactions............................... .03 (.04)
------------ ----------
Total from investment operations........... .27 --
------------ ----------
Less distributions
Dividends from net investment income......... (.24) (.04)
Distributions from net realized gains........ -- --
------------ ----------
Total distributions........................ (.24) (.04)
------------ ----------
Net asset value, end of period............... $ 11.22 $ 11.19
------------ ----------
------------ ----------
TOTAL RETURN#:............................... 2.58% (0.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $ 202@ $ 200@
Average net assets (000)..................... $ 193@ $ 199@
Ratios to average net assets:
Expenses, including distribution fees...... 2.03%*/D 2.05%*
Expenses, excluding distribution fees...... 1.28%*/D 1.30%*
Net investment income...................... 4.68%*/D 4.68%*
Portfolio turnover........................... 8% 27%
- ---------------
</TABLE>
* Annualized.
D Net of expense subsidy/fee waiver.
DD Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
@ Figures are actual and are not rounded to the nearest thousand.
See Notes to Financial Statements.
-14-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were
not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M309
74435M408 MF118E2
74435M580 (LOGO) Cat. #642851X
SEMI-ANNUAL REPORT February 28, 1995
Prudential
Municipal Series Fund
(ICON)
Hawaii Income Series
(LOGO)
<PAGE>
Letter to Shareholders
March 15, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates have fallen and
newly-issued tax-free bonds have become scarce. We are pleased to report that
your Prudential Municipal Series Fund -- Hawaii Income Series has produced a
positive total return and, since its inception, performed better than the
average Hawaii municipal bond fund, as measured by Lipper Analytical Services,
Inc. Performance is higher because the Series commenced investment operations
in September and held a large portion of its assets in short-term, tax-exempt
securities as a defensive strategy to safeguard against interest rate moves.
Less Means More...
For You!
Prudential municipal bond fund shareholders will be seeing total returns
increase in the months to come, thanks to a reduction in fund management
expenses. Prudential Mutual Funds lowered the rate on January 1, 1995 to .45%
from .50%. It is our way of showing that we appreciate your business and that
we remain committed to managing the Fund for your benefit.
FUND PERFORMANCE1
<TABLE>
<CAPTION>
Cumulative Avg. Annual NAV
Total Return Total Return 9/19/94 - 2/28/95
Since Inception2 Since Inception2
<S> <C> <C> <C> <C>
Class A 4.08% .96% $11.64 $11.85
Class B 3.91 -1.09 11.64 11.85
Class C 3.80 2.80 11.64 11.85
Lipper HI
Muni Avg.3 1.8 N/A N/A N/A
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Series charges a maximum front-end sales load of 3% for Class A
shares. Class B shares are subject to a contingent deferred sales charge of
5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1% CDSC for
one year. Class B shares will automatically convert to Class A shares on a
quarterly basis, after approximately seven years.
2Inception dates: 9/19/94 for Class A, B and C.
3Lipper average returns are for 9 funds since inception on 9/30/94.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from state and federal income taxes
consistent with preservation of capital. Certain shareholders maybe subject
to the federal alternative minimum tax, however. The Series is non-diversified,
so that more than 5% of the total assets may be invested in one or more issuers.
The Series will invest primarily in Hawaii state, municipal and local
government obligations and obligations of U.S. territories (such as Puerto
Rico, the U.S. Virgin Islands and Guam), the income from which is also exempt
from federal and Hawaii state income taxes. To enhance its yield, the Series
has the flexibility to invest up to 30% of its total assets in Hawaiian
obligations which are below investment grade and carry a higher degree of risk
(junk bonds). The Series may invest up to 5% of its total assets in Hawaiian
obligations that are in default in the payment of principal or interest.
However, the Series has not yet invested in these types of bonds because they
are not available.
New Year Opens With Bond Rally.
What a difference six months can make! Last September the tax-exempt bond
market was in turmoil because interest rates were rising sharply, and prices
(which move in the opposite direction to interest rates) were falling.
Volatility escalated last year when the Federal Reserve started to increase
short-term rates in a preemptive strike against inflation. By November, after
the central bank's sixth increase in short-term interest rates, investors began
to believe that the economy was showing signs of slowing. As a result,
long-term interest rates in the tax-exempt bond market started to fall.
Long-term interest rates have fallen dramatically, and have continued to do
so even though the Federal Reserve raised short-term interest rates once again
on February 1, 1995. In fact, on March 2, the Bond Buyer's Revenue Bond
Index sank to its lowest since June -- 6.3%. That's more than a full
percentage point lower than its 1994 high -- 7.4% on November 17.
What We Did As Interest Rates Moved.
Since the Series commenced investment operations last September, we held a
substantial portion of assets in cash to safeguard assets as interest rates
rose.
We also have not been able to purchase any below-investment grade bonds,
because these obligations are relatively scarce in Hawaii. We did purchase
some higher quality State of Hawaii general obligation bonds such as State of
Hawaii Harbor capital improvement bonds.
-2-
<PAGE>
Smaller Supply Supports Market, Particularly in Hawaii.
The tax-exempt municipal bond market was also helped recently as new supply
has significantly contracted. Last year's higher interest rates made many
issuers reluctant to borrow money. In fact, the Revenue Bond Index rose
dramatically last year to 7.0% from 5.5% -- nearly one and a half percentage
points. As a result, the level of new bonds issued fell by 44% last year
nationally, and in Hawaii by 77%.
Hawaii: The Economy is Tourism.
Tourism forms the basis of Hawaii's economy. As the continental U.S. economy
recovered in 1994, so did tourism in the "Aloha State" after two years of
decline. Continued improvement is expected in 1995, although performance is
not expected to reach the record levels of 1990 and 1991. Construction activity
continues to be slow, although increase infrastructure spending by the
government sector has partially offset the trailing private sector.
The City and County of Honolulu has been particularly hard hit by the drop in
tourism and has shown some signs of financial strain. Standard & Poor's
currently has a negative outlook on Honolulu so we have been avoiding this
credit.
The state government is strong fiscally. Hawaii's history of sound fiscal
management by maintaining proper budget reserves has earned it a highly rated,
stable credit position of Aa/AA by Moody's Investors Service and Standard &
Poor's Corp. Most of Hawaii's issues are of higher quality.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index increased 2.8% over the last six
months in total return. That is a substantial relief to investors who saw
sharply rising interest rates and falling bond prices in 1994.
On the Hill:
In 1995, Congress is set to consider an initiative that would restore full
income tax deductibility for individual retirement account contributions for
middle-income wage earners. In addition, Congress will also debate creation of
a new tax-deferred savings account, called "the American Dream Savings
Account." Prudential Mutual Funds supports both of these proposals, and we
urge you to share yourown opinion with your Congressional representatives. We
will keep you updated on the proposals as they make their way through the
legislative process.
-3-
<PAGE>
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we believe the supply of
tax-free municipals to continue to contract, which should also provide an
additional reward to investors.
As always, it is a pleasure to work for you. We appreciate the confidence
you have shown in us by investing in the Prudential Municipal Series
Fund -- Hawaii Income Series.
Sincerely,
Lawrence C. McQuade
President
Christian Smith
Portfolio Manager
-4-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
HAWAII INCOME SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--78.6%
Guam Arpt. Auth. Rev.,
6.70%, 10/1/23, Ser.
BBB* $ 455 B..................... $ 450,386
Guam Pwr. Auth. Rev.,
Ser. A,
BBB* 250 6.625%, 10/1/14......... 251,687
BBB* 525 6.75%, 10/1/24.......... 530,208
Hawaii St. Arpt. Sys.
Rev.,
A 365 7.00%, 7/1/18........... 373,968
7.50%, 7/1/20,
2nd Ser. 90,
Aaa 500 F.G.I.C............... 537,275
Hawaii St. Dept. Budget
& Fin.,
Kapiolani Hlth. Care
Sys.,
A 500 6.30%, 7/1/08........... 503,720
Mtg. Rev., Hawaiian
Elec. Co.,
Ser. C, M.B.I.A.,
Aaa 500 7.375%, 12/1/20....... 536,060
Queens Med. Ctr. Proj.,
5.90%, 7/1/07,
Aaa 230 F.G.I.C............... 232,445
Hawaii St. Harbor Cap.
Impvt. Rev.,
6.25%, 7/1/10,
Aaa 250@ F.G.I.C............... 257,135
Hawaii St., Gen. Oblig.,
6.25%, 1/1/15, Ser.
Aa 650 CJ.................... 658,509
Maui Cnty., Ref.,
5.125%, 12/15/10,
Aaa 500 F.G.I.C............... 453,795
Puerto Rico Elec. Pwr.
Auth. Rev., Frmly.
Puerto Rico Comnwlth.
Wtr. Res. Auth.,
Baa1 600 5.00%, 7/1/12, Ser. O... 528,456
Puerto Rico Hsg. Fin.
Corp.,
Sngl. Fam. Mtge. Rev.,
6.40%, 10/15/06,
Aaa 750@ G.N.M.A............... 778,597
Puerto Rico Ind.,
Tourist, Edu., Med. &
Envir. Ctrl. Facs.,
Hosp. Auxilio Mutuo
Oblig. Grp. Proj.,
6.25%, 7/1/16,
Aaa 500 M.B.I.A............... 515,780
Puerto Rico Mun. Fin.
Agcy.,
Ser. A, F.S.A.,
Aaa 250 6.00%, 7/1/14......... 253,465
Puerto Rico Tel. Auth.
Rev.,
A 305 5.75%, 1/1/08, Ser. L... 301,563
Univ. of Hawaii Sys.
Rev.,
Ser. G, A.M.B.A.C.,
Aaa $ 280 5.45%, 10/1/06........ $ 277,612
Virgin Islands Pub. Fin.
Auth. Rev., Gov't.
Dev. Proj.,
7.375%, 10/1/10, Ser.
BBB-* 300 B..................... 319,101
Matching Fund Loan
Notes,
7.25%, 10/1/18, Ser.
NR 250 A..................... 258,165
-----------
Total long-term
investments
(cost $7,711,094)....... 8,017,927
-----------
SHORT-TERM INVESTMENTS--1.0%
Hawaii St. Dept. Budget
& Fin.,
Adventist Hlth.
Sys/West, Ser. 94,
3.95%, 3/1/95, F.R.W.D.
VMIG1 100 (cost $100,000)....... 100,000
-----------
Total Investments--79.6%
(cost $7,811,094; Note
5).................... 8,117,927
Other assets in excess
of
liabilities--20.4%.... 2,083,428
-----------
Net Assets--100%........ $10,201,355
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.W.D.--Floating Rate Weekly Demand Note#.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par of the
next date on which the rate of interest is
adjusted.
@ Pledged as initial margin on financial futures
contracts.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$7,811,094)................................................ $ 8,117,927
Cash.........................................................................
.......... 480,430
Receivable for investments
sold........................................................ 2,114,883
Interest
receivable....................................................................
132,285
Receivable for Fund shares
sold........................................................ 95,821
Due from
Manager.......................................................................
8,947
Due from broker - variation
margin..................................................... 4,063
Other
assets.......................................................................
.... 95,136
-----------------
Total
assets.........................................................................
11,049,492
-----------------
Liabilities
Payable for investments
purchased...................................................... 707,681
Accrued
expenses.......................................................................
95,476
Payable for Fund shares
reacquired..................................................... 39,088
Distribution fee
payable...............................................................
3,018
Dividends
payable......................................................................
2,584
Deferred Trustees'
fees................................................................
290
-----------------
Total
liabilities....................................................................
848,137
-----------------
Net
Assets.......................................................................
...... $10,201,355
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 8,609
Paid-in capital in excess of
par..................................................... 9,871,050
-----------------
9,879,659
Accumulated net realized loss on
investments......................................... (5,137)
Net unrealized appreciation of
investments........................................... 326,833
-----------------
Net assets, February 28,
1995........................................................ $10,201,355
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($2,994,707 / 252,732 shares of beneficial interest issued and
outstanding)........ $11.85
Maximum sales charge (3.0% of offering
price)........................................ .37
-----------------
Maximum offering price to
public..................................................... $12.22
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($6,824,308 / 575,921 shares of beneficial interest issued and
outstanding)........ $11.85
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($382,340 / 32,267 shares of beneficial interest issued and
outstanding)........... $11.85
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
September 19,
1994D
through
Net Investment Income February 28,1995
------------------
<S> <C>
Income
Interest...................... $189,652
----------
Expenses
Management fee, net waiver
of $788...................... 15,363
Distribution fee--Class A..... 1,063
Distribution fee--Class B..... 10,227
Distribution fee--Class C..... 912
Custodian's fees and
expenses...................... 19,000
Reports to shareholders....... 10,000
Registration fees............. 8,000
Transfer agent's fees and
expenses...................... 7,000
Audit fee..................... 5,300
Legal fees.................... 5,000
Amortization of organization
expense....................... 3,659
Trustees' fees................ 1,600
Miscellaneous................. 2,971
----------
Total expenses.............. 90,095
----------
Less: expense subsidy (Note
4)............................ (64,920)
----------
Net expenses................ 25,175
----------
Net investment income........... 164,477
----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions....... 64,364
Financial futures contract
transactions.................. (69,501)
----------
(5,137)
----------
Net change in unrealized
appreciation of:
Investments................... 306,833
Financial futures contracts... 20,000
----------
326,833
----------
Net gain on investments......... 321,696
----------
Net Increase in Net Assets
Resulting from Operations....... $486,173
----------
----------
</TABLE>
- ------------------
D Commencement of investment operations.
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
September 19,
1994D
Increase (Decrease) through
in Net Assets February 28, 1995
------------------
<S> <C>
Operations
Net investment income.......... $ 164,477
Net realized loss on investment
transactions................. (5,137)
Net change in unrealized
appreciation of
investments.................. 326,833
------------------
Net increase in net assets
resulting from operations...... 486,173
------------------
Dividends from net investment
income
(Note 1):
Class A........................ (55,204)
Class B........................ (103,446)
Class C........................ (5,827)
------------------
(164,477)
------------------
Series share transactions (Note
6):
Net proceeds from shares
sold......................... 10,286,091
Net asset value of shares
issued in reinvestment of
dividends.................... 66,482
Cost of shares reacquired...... (472,914)
------------------
Net increase in net assets from
Series
share transactions............. 9,879,659
------------------
Total increase................... 10,201,355
Net Assets
Beginning of period.............. 0
------------------
End of period.................... $ 10,201,355
------------------
------------------
</TABLE>
- ------------------
D Commencement of investment operations.
See Notes to Financial Statements. See Notes to Financial Statements.
-7-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Hawaii Income Series (the ``Series'')
commenced investment operations on September 19, 1994. The Series is
non-diversified and seeks to provide the maximum amount of income that is exempt
from Hawaii State and federal income taxes consistent with the preservation of
capital by investing in investment grade municipal obligations but may also
invest a portion of its assets in lower-quality municipal obligations or in
non-rated securities which, in the opinion of the Fund's investment adviser, are
of comparable quality. The ability of the issuers of the securities held by the
Series to meet their obligations may be affected by economic or political
developments in a specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain(loss) on
financial futures contracts. The Series invests in financial futures contracts
in order to hedge its existing portfolio securities or securities the Series
intends to purchase, against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason and because substantially all of the Series' gross income
consists of tax-exempt interest, no federal income tax provision is required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
-8-
<PAGE>
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Deferred Organization Expenses: The Series incurred $98,700 in organization and
initial registration expenses. Such amount has been deferred and is being
amortized over a period of 60 months ending September, 1999.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to $788.
The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the period ended February 28, 1995.
PMFD has advised the Series that it has received approximately $16,700 in
front-end sales charges resulting from sales of Class A shares during the period
ended February 28, 1995. From these fees, PMFD paid such sales charges to PSI
and Pruco Securities Corporation, affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the period ended February 28, 1995, it
received approximately $2,800 in contingent deferred sales charges imposed upon
certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions with vices, Inc. (``PMFS''), a
Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the period ended February 28, 1995, the Series incurred fees of approximately
$1,000 for the services of PMFS. As of February 28, 1995, approximately $200 of
such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of
Operations include certain out-of-pocket expenses paid to non-affiliates.
Note 4. Expense PMF has agreed to subsidize
Subsidy expenses so that total Series
operating expenses do not exceed .50%, .90% and
1.15% of the average net assets of the Class A shares, Class B shares and Class
C shares, respectively until further notice. For the period ended February 28,
1995, PMF subsidized $64,920 ($.09 per share for Class A, B and C shares; 1.99%
of average net assets) of the Series' expenses. The Series is not required to
reimburse PMF for such subsidy.
Note 5. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the period
ended February 28, 1995 were $11,029,112 and $3,380,187, respectively.
At February 28, 1995, the Fund sold 10 financial futures contracts on the
Municipal Bond Index which expire in March 1995. The value at disposition of
such contracts is $906,875. The value of such contracts on February 28, 1995 was
$886,875, thereby resulting in an unrealized gain of $20,000.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation for federal income tax
purposes was $306,833 (gross unrealized appreciation--$306,861; gross unrealized
depreciation--$28).
-9-
<PAGE>
<PAGE>
Note 6. Capital The Series offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3.0%. Class B shares are sold with
a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase commencing in or about February 1995.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share. Of the 860,920 shares of beneficial
interest issued and outstanding at February 28, 1995, PMF owned 171,851 shares.
Transactions in shares of beneficial interest for the period ended February 28,
1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- -------- ----------
<S> <C> <C>
September 19, 1994* through
February 28, 1995:
Shares sold....................... 261,939 $3,038,447
Shares issued in reinvestment of
dividends....................... 441 5,088
Shares reacquired................. (9,648) (110,995)
-------- ----------
Net increase in shares
outstanding..................... 252,732 $2,932,540
<CAPTION>
-------- ----------
-------- ----------
Class B Shares Amount
- ---------------------------------- -------- ----------
<S> <C> <C>
September 19, 1994* through
February 28, 1995:
Shares sold....................... 601,912 $6,880,253
Shares issued in reinvestment of
dividends....................... 5,017 57,794
Shares reacquired................. (31,008) (361,847)
-------- ----------
Net increase in shares
outstanding..................... 575,921 $6,576,200
-------- ----------
-------- ----------
<CAPTION>
Class C
- ----------------------------------
<S> <C> <C>
September 19, 1994* through
February 28, 1995:
Shares sold....................... 31,959 $ 367,391
Shares issued in reinvestment of
dividends....................... 314 3,600
Shares reacquired................. (6) (72)
-------- ----------
Net increase in shares
outstanding..................... 32,267 $ 370,919
-------- ----------
-------- ----------
- ---------------
* Commencement of investment operations.
</TABLE>
-10-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A Class B Class C
- ------------- ------------- -------------
September 19, September 19, September 19,
1994D 1994D 1994D
through through through
PER SHARE OPERATING
February 28, February 28, February 28,
PERFORMANCE:
1995 1995 1995
- ------------- ------------- -------------
<S> <C>
<C> <C>
Net asset value, beginning of period.....................................
$ 11.64 $ 11.64 $ 11.64
------ ------ ------
Income from investment operations
Net investment income@...................................................
.26 .24 .23
Net realized and unrealized gain (loss) on investment transactions.......
.21 .21 .21
------ ------ ------
Total from investment operations.......................................
.47 .45 .44
------ ------ ------
Less distributions
Dividends from net investment income.....................................
(.26) (.24) (.23)
------ ------ ------
Net asset value, end of period...........................................
$ 11.85 $ 11.85 $ 11.85
------ ------ ------
------ ------ ------
TOTAL RETURN#:...........................................................
4.08% 3.91% 3.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..........................................
$ 2,995 $ 6,824 $ 382
Average net assets (000).................................................
$ 2,381 $ 4,580 $ 272
Ratios to average net assets:*/@
Expenses, including distribution fees..................................
.50% .90% 1.15%
Expenses, excluding distribution fees..................................
.40% .40% .40%
Net investment income..................................................
5.19% 5.06% 4.80%
Portfolio turnover rate..................................................
54% 54% 54%
</TABLE>
- ---------------
* Annualized.
D Commencement of investment operations.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase
of shares on the first day and a sale on the last day of each period
reported and includes reinvestment
of dividends. Total returns for periods of less than a full year are not
annualized.
@ Net of expense subsidy.
See Notes to Financial Statements.
-11-
<PAGE>
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435M473
74435M465
74435M457 Prudential Mutual Fund Management (LOGO) MF 165E2
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ----------------------------
(PICTURE)
Maryland Series
(LOGO)
<PAGE>
Letter to
Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued tax-exempt bonds became scarce. We are pleased to report
that your Prudential Municipal Series Fund -- Maryland Series has earned
a positive total return, although it did earn less than the average Maryland
municipal bond fund as measured by Lipper Analytical Services, Inc.,
because the average maturities held by the Series were shorter than the
Lipper average fund.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 1.8% -0.3% 38.0% N/A 39.2%
Class B 1.7% -0.7% 35.6% 101.6% 100.0%
Class C 1.5% N/A N/A N/A 1.6%
Lipper MD
Muni. Avg3 2.5% 0.3% 41.0% 109.5% 107.6%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 1.8% 6.2% N/A 6.1%
Class B -0.3% 6.3% 7.4% 7.1%
Class C N/A N/A N/A 1.2%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3% for
Class A shares. Class B shares are subject to a contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a
1% CDSC for one year. Class B shares will automatically convert to Class
A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 1/22/85, Class B; 8/1/94 Class C.
3Lipper average returns are for 24 funds for six months, 23 funds for one
year, 8 funds for five years, 2 funds for 10 years, and 2 funds since
inception of Class B shares on 1/22/85.
Less Means More...
For You!
Prudential mutual fund shareholders will
be seeing total returns increase in
the months to come, thanks to a reduction
in Fund management expenses. Prudential
Mutual Funds lowered the rate on January 1,
1995, to 0.45% from 0.50%. It is our way of
showing you that we appreciate your business
and that we remain committed to managing the
Fund for your benefit.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from state and federal income
taxes consistent with preservation of capital. Certain shareholders may
be subject to the federal alternative minimum tax. The Series will invest
primarily in Maryland state, municipal and local government obligations
and obligations of U.S. territories (such as Puerto Rico, the U.S. Virgin
Islands and Guam), the income from which is also exempt from federal and
Maryland state income taxes.
On the Hill...
In 1995, Congress will most likely consider
an initiative that would restore full income
tax deductibility for individual retirement account
(IRA) contributions for middle-income wage earners.
In addition, Congress may also consider the creation
of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual
Funds supports both of these proposals, and we urge
you to share your opinion with your Congressional
representatives. We will keep you updated on these
initiatives as they make their way through the
legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you,
the tax-exempt bond market was in turmoil because interest rates were
rising sharply, and prices (which move in the opposite direction of
interest rates) were falling sharply.
Volatility escalated last year when the Federal Reserve started to
increase short-term interest rates in a pre-emptive strike against
inflation. By November, after the Federal Reserve's sixth increase
in the federal funds rate (the interbank overnight lending rate),
investors began to believe that the economy was showing signs of
slowing. As a result, long-term interest rates in the tax-exempt
bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even
though the Federal Reserve raised short-term rates again on February
1, 1995. In fact, on March 2, the Bond Buyer's Revenue Bond Index
sank to 6.3% -- its lowest since last June. That's more than a full
percentage point below its 1994 high -- 7.4% recorded on November
17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize
asset values by maintaining a balance between bonds with higher coupons
and those with lower coupons, sometimes called premium and discount bonds.
The higher yielding premium bonds help cushion the impact of rising
interest rates while the lower coupon or discount bonds offer price
appreciation potential when interest rates decline.
Over the past six months, the Series upgraded its quality by increasing
triple-A rated and insured holdings to 37% from 30%. The Series did so
by selling lower-rated health care, housing, industrial development
and utility bonds, and buying higher-rated housing and education bonds.
-2-
<PAGE>
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many
issuers reluctant to borrow money. In fact, the Revenue Bond Index rose
dramatically to 6.9% from 5.5% -- nearly one and a half percentage
points. As a result, the level of new bonds issued nationwide fell by
44% and in Maryland by 48%.
A Tax Reminder...
As a result of the Revenue Reconciliation
Act of 1993, it is possible that this year
you may have some taxable income from your
normally tax-exempt municipal bond fund.
The law stipulates that the portion of any
gain realized on the sale or retirement of a
tax-exempt bond purchased at a market discount
to its face value may be taxed as ordinary income.
The law affects bonds purchased after April 30, 1993.
Maryland: Superior Credit Quality.
The State of Maryland has the fifth largest per capita income of all
the states. The state's economy depends more on government employment
than most, because many of its citizens work in Washington, D.C. while
living in suburban Maryland. This has tended to create stability over
the years. Maryland's unemployment rate consistently falls below the
national average.
The state's fiscal management tends to be conservative. It limits debt
to 3.2% of personal income and debt service to 8% of state revenues.
In addition, there is a budgetary reserve of 5% of annual revenues, now
amounting to $360 million. Because of this conservative fiscal management,
many of the state's counties and cities provide great investment
opportunities.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last
six month. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is
satisfied that it has inflation under control. In addition, we believe
the supply of tax-exempt municipals will continue to contract, which
should also provide an additional reward to investors by supporting prices.
-3-
<PAGE>
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Maryland Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Marie Conti
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds
chief fixed income strategist Dennis Bushe about why bonds and bond mutual
funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
both this risk, and that may be especially important in 1995. First of all,
if the U.S. economy is beginning to slow down, as many economists believe,
then credit quality is a concern. A credit team becomes very valuable,
carefully selecting bonds in different sectors and industries for bond
portfolios. In addition, few individual investors have the resources or
clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled issuers -- a
bond fund does. Finally, the diversification of a bond fund may help
investors avoid wide price swings if one holding does experience financial
difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
MARYLAND SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--93.5%
Anne Arundel Cnty.,
Baltimore Gas & Elec.
Co. Proj.,
A2 $ 675 6.00%, 4/1/24........... $ 663,552
Cons. Gen. Impvt.,
Aa1 1,000 6.00%, 7/15/11.......... 1,008,470
Baltimore Cert. of
Part., M.B.I.A.,
Aaa 1,000 5.25%, 4/1/16........... 909,750
Pension Funding,
Aaa 1,000 7.25%, 4/1/16, Ser. A... 1,110,740
Baltimore Conv. Ctr.
Rev.,
Aaa 1,075 5.75%, 9/1/08,
F.G.I.C............... 1,081,235
Aaa 1,250 6.15%, 9/1/19,
F.G.I.C............... 1,261,612
Baltimore Econ. Dev.
Lease
Rev., Armistead
Partnership,
BBB+* 1,000 7.00%, 8/1/11........... 1,027,460
Charles Cnty., Gen.
Oblig.,
A1 1,580D 6.375%, 12/1/03......... 1,695,103
Dist. of Columbia Met.
Area Transit Auth.
Gross Rev.,
Aaa 1,500 5.25%, 7/1/14,
F.G.I.C............... 1,362,555
Gaithersburg Econ. Dev.
Rev.,
Asbury Methodist,
NR 1,000 5.50%, 1/1/20........... 827,440
Howard Cnty., Met.
Dist.,
Aa1 1,000 6.00%, 8/15/03, Ser.
B..................... 1,051,390
Aa1 2,115 Zero Coupon, 8/15/09,
Ser. B................ 940,773
Kent Cnty., Coll. Rev.
Proj. & Ref.,
Washington Coll. Proj.,
Baa1 1,500 7.70%, 7/1/18........... 1,603,755
Maryland St. Dept.
Trans. Cons.,
Aa 1,000 4.10%, 12/15/00......... 926,810
Maryland St. Econ. Dev.
Co.,
Hilton Street
Facility, Ser. A,
AA* 600 7.00%, 1/1/10........... 627,162
Maryland St. Hlth. &
Higher Edl. Facs.,
Auth. Rev.,
Baltimore Cnty., Gen.
Hosp.,
Aaa 750D 7.75%, 7/1/13,
A.M.B.A.C............. 827,835
Maryland St. Hlth. &
Higher
Edl. Facs., Auth. Rev.,
Church Hosp.,
A $ 500 8.00%, 7/1/13........... $ 545,970
Doctor's Comn. Hosp.,
Baa 1,000 5.50%, 7/1/24........... 773,580
Franklin Square Hosp.,
Aaa 1,000 7.50%, 7/1/19,
M.B.I.A............... 1,085,130
Hartford Mem. Hosp. &
Fallston,
Baa1 750 8.50%, 7/1/14........... 793,222
Howard Cnty. Gen. Hosp.,
Baa1 1,000 5.50%, 7/1/21........... 795,480
No. Arundel Hosp.,
Aaa 1,250D 7.875%, 7/1/21,
B.I.G................. 1,384,062
Sinai Hosp. of
Baltimore,
Aaa 500 5.25%, 7/1/19,
A.M.B.A.C............. 445,835
Aaa 350 5.25%, 7/1/23,
A.M.B.A.C............. 308,802
Maryland St. Hsg. &
Cmnty. Dev. Admin.,
Sngl. Fam. Mtge. Rev.
Proj.,
Aa 845 7.125%, 4/1/14, Sixth
Ser................... 884,504
Aa 920@ 7.70%, 4/1/15, Fifth
Ser................... 978,751
Aa 750 8.00%, 4/1/18, Third
Ser................... 793,290
Maryland St. Ind. Auth.
Econ.
Dev., Holy Cross Hlth.
Sys. Corp.,
A1 1,500 5.50%, 12/1/15.......... 1,347,525
Maryland St. Ind. Dev.
Fin. Auth.
Rev., Amer. Ctr. For
Physics,
BBB* 1,000 6.625%, 1/1/17.......... 984,580
Maryland St. Trans.
Auth., Washington
Int'l. Arpt.,
Aaa 1,250 6.25%, 7/1/14,
F.G.I.C............... 1,266,063
Maryland Wtr. Quality
Fin. Admin.,
Revolving Loan Fund
Rev.,
Aa 565 5.90%, 9/1/04, Ser. A... 585,786
Aa 500 5.40%, 9/1/13........... 467,265
Montgomery Cnty.,
Cons. Pub. Impvt.,
Aaa 450 9.75%, 6/1/01........... 558,936
Aaa 1,300 5.75%, 10/1/07, Ser.
A..................... 1,333,111
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Montgomery Cnty. Hsg.
Opportunities Comn.,
Sngl. Fam. Mtge. Rev.,
Aa $ 1,440 7.625%, 7/1/17, Ser.
A..................... $ 1,513,224
Northeast Waste Disp.
Auth.,
Baltimore City Sludge
Proj.,
NR 957 7.25%, 7/1/07........... 964,618
Montgomery Cnty. Proj.,
A 1,200 6.30%, 7/1/16........... 1,162,944
Prince Georges Cnty.
Hsg.
Auth. Mtge. Rev.,
Laurel Apts.,
AAA* 750 6.25%, 4/20/20,
F.N.M.A............... 748,035
Prince Georges Cnty.,
Hosp. Rev.,
Dimensions Hlth.
Corp.,
A 1,250 5.30%, 7/1/24........... 1,018,275
Stormwater Mgmt.,
Aa 1,140 6.50%, 3/15/03.......... 1,227,860
Puerto Rico Comnwlth.
Aqueduct & Swr. Auth.
Rev.,
Aaa 90 10.125%, 7/1/99......... 108,072
Aaa 225 10.25%, 7/1/09.......... 302,141
Puerto Rico Comnwlth.,
Gen. Oblig.,
Aaa 1,000DD 7.382%, 7/1/20,
F.S.A................. 955,000
Puerto Rico Tel. Auth.
Rev.,
M.B.I.A., Ser. I,
Aaa 1,000DD 6.397%, 1/16/15......... 908,750
Virgin Islands Pub. Fin.
Auth. Rev.,
Ref. Matching Loan
Notes,
NR 600 7.25%, 10/1/18, Ser.
A..................... 619,596
Washington Cnty. Public
Impvt.,
Aaa 1,450 4.875%, 1/1/14,
F.G.I.C............... 1,271,694
Washington Suburban San.
Dist.,
Ref., Gen.
Construction,
Aa1 1,500 5.25%, 6/1/12........... 1,405,965
-----------
Total long-term
investments
(cost $43,228,202).... 44,463,708
-----------
SHORT-TERM INVESTMENTS--3.8%
Maryland St. Energy Fin.
Auth., Baltimore
Proj.,
F.R.D.D., Ser. 91,
VMIG1 $ 900 4.10%, 3/1/95........... $ 900,000
Puerto Rico Comnwlth.
Hwy. & Trans. Auth.
Rev., F.R.W.D.,
VMIG1 400 3.50%, 3/1/95........... 400,000
Puerto Rico Comnwlth.,
Gov't. Dev. Bank.,
F.R.W.D.,
VMIG1 500 3.90%, 3/1/95, Ser.
85.................... 500,000
-----------
Total short-term
investments
(cost $1,800,000)..... 1,800,000
-----------
Total Investments--97.3%
(cost $45,028,202; Note
4).................... 46,263,708
Other assets in excess
of
liabilities--2.7%..... 1,285,041
-----------
Net Assets--100%........ $47,548,749
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.N.M.A.--Federal National Mortgage Association.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.R.W.D.--Floating Rate (Weekly) Demand Note #.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par, or the
next date on which the rate of interest is
adjusted.
* Standard & Poor's Rating.
D Prerefunded issues are secured by escrowed cash
and/or
direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate.
The rate shown is the rate at period end.
@ Pledged as initial margin on financial futures
contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$45,028,202)....................................................
$46,263,708
Cash.........................................................................
............... 636,690
Receivable for investments
sold.............................................................
1,200,235
Interest
receivable...................................................................
...... 707,728
Receivable for Fund shares
sold.............................................................
19,107
Other
assets.......................................................................
......... 1,132
-----------------
Total
assets.......................................................................
....... 48,828,600
-----------------
Liabilities
Payable for investments
purchased...........................................................
936,149
Payable for Fund shares
reacquired..........................................................
286,539
Management fee
payable......................................................................
16,028
Dividends
payable......................................................................
..... 15,596
Distribution fee
payable....................................................................
13,049
Due to broker - variation
margin............................................................
7,312
Accrued
expenses.....................................................................
....... 3,878
Deferred trustee
fees.......................................................................
1,300
-----------------
Total
liabilities..................................................................
....... 1,279,851
-----------------
Net
Assets.......................................................................
........... $47,548,749
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par..................................................... $ 45,453
Paid-in capital in excess of
par.......................................................... 47,669,939
-----------------
47,715,392
Accumulated net realized loss on
investments.............................................. (1,249,149)
Net unrealized appreciation of
investments................................................ 1,082,506
-----------------
Net assets, February 28,
1995.............................................................
$47,548,749
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($20,467,592 / 1,957,954 shares of beneficial interest issued and
outstanding).......... $10.45
Maximum sales charge (3.0% of offering
price)............................................. .32
-----------------
Maximum offering price to
public..........................................................
$10.77
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($27,052,767 / 2,584,612 shares of beneficial interest issued and
outstanding).......... $10.47
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($28,390 / 2,712 shares of beneficial interest issued and
outstanding).................. $10.47
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest............................... $ 1,579,804
------------
Expenses
Management fee, net waiver of $3,765... 116,663
Distribution fee--Class A.............. 2,277
Distribution fee--Class B.............. 108,864
Distribution fee--Class C.............. 268
Custodian's fees and expenses.......... 46,000
Transfer agent's fees and expenses..... 19,000
Registration fees...................... 14,000
Reports to shareholders................ 11,000
Audit fee.............................. 5,300
Legal fees............................. 5,000
Trustees' fees......................... 1,600
Miscellaneous.......................... 8,179
------------
Total expenses....................... 338,151
------------
Net investment income.................. 1,241,653
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions................ (929,862)
Financial futures contract
transactions........................... (190,147)
------------
(1,120,009)
------------
Net change in unrealized
appreciation/depreciation of:
Investments............................ 548,181
Financial futures contracts............ (187,313)
------------
360,868
------------
Net loss on investments.................. (759,141)
------------
Net Increase in Net Assets
Resulting from Operations................ $ 482,512
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ -----------
<S> <C> <C>
Operations
Net investment income........ $ 1,241,653 $ 2,785,557
Net realized gain (loss) on
investment transactions.... (1,120,009) 658,135
Net change in unrealized
appreciation/depreciation
of investments............. 360,868 (4,715,895)
------------ -----------
Net increase (decrease) in
net assets resulting from
operations................. 482,512 (1,272,203)
------------ -----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A.................... (131,058) (149,002)
Class B.................... (1,108,859) (2,636,439)
Class C.................... (1,736) (116)
------------ -----------
(1,241,653) (2,785,557)
------------ -----------
Distributions from net
realized gains
Class A.................... (21,234) (53,117)
Class B.................... (419,138) (1,057,112)
Class C.................... (255) --
------------ -----------
(440,627) (1,110,229)
------------ -----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold....................... 1,180,157 5,404,805
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 1,152,113 2,685,739
Cost of shares reacquired.... (7,593,379) (9,441,263)
------------ -----------
Net decrease in net assets
from Series share
transactions............... (5,261,109) (1,350,719)
------------ -----------
Total decrease................. (6,460,877) (6,518,708)
Net Assets
Beginning of period............ 54,009,626 60,528,334
------------ -----------
End of period.................. $ 47,548,749 $54,009,626
------------ -----------
------------ -----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Maryland Series (the ``Series'') commenced
investment operations in January, 1985. The Series is diversified and seeks to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities whose ratings are
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic or political developments in a specific
state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures contracts. The Series invests in financial
futures contracts in order to hedge its existing portfolio securities or
securities the Series intends to purchase, against fluctuations in value caused
by changes in prevailing interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
-10-
<PAGE>
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$3,765 ($0.001 per share for Class A, B and C shares; .02% of average net
assets). The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $28,300 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $39,400 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $12,000 for the services of PMFS. As of February 28, 1995,
approximately $2,200 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $9,169,115 and $15,112,292, respectively.
At February 28, 1995, the Fund sold 18 financial futures contracts on the
Municipal Bond Index expiring in March 1995. The value at disposition of such
contracts is $1,479,375. The value of such contracts on February 28, 1995 was
$1,632,375, thereby resulting in an unrealized loss of $153,000.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation of investments for federal
income tax purposes is $1,235,505 (gross unrealized appreciation--$1,934,228;
gross unrealized depreciation $698,723).
Note 5. Capital The Series offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3.0%. Class B shares are sold with
a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase.
-11-
<PAGE>
<PAGE>
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share. Transactions in shares of beneficial
interest for the six months ended February 28, 1995 and the fiscal year ended
August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
<S> <C> <C>
---------- ------------
Six months ended
February 28, 1995
Shares sold................... 9,550 $ 97,872
Shares issued in reinvestment
of dividends and
distributions............... 9,865 100,827
Shares reacquired............. (65,867) (674,111)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (46,452) (475,412)
Shares issued upon conversion
from Class B................ 1,750,159 18,026,644
---------- ------------
Net increase in shares
outstanding................. 1,703,707 $ 17,551,232
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 74,702 $ 830,474
Shares issued in reinvestment
of dividends and
distributions............... 12,858 143,277
Shares reacquired............. (85,098) (937,854)
---------- ------------
Net increase in shares
outstanding................. 2,462 $ 35,897
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
<S> <C> <C>
---------- ------------
Six months ended
February 28, 1995
Shares sold................... 102,745 $ 1,069,601
Shares issued in reinvestment
of dividends and
distributions............... 104,121 1,049,896
Shares reacquired............. (671,615) (6,836,653)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (464,749) (4,717,156)
Shares reacquired upon conver-
sion into Class A........... (1,748,462) (18,026,644)
---------- ------------
Net decrease in shares
outstanding................. (2,213,211) $(22,743,800)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 399,067 $ 4,473,113
Shares issued in reinvestment
of dividends and
distributions............... 228,006 2,542,431
Shares reacquired............. (772,159) (8,503,409)
---------- ------------
Net decrease in shares
outstanding................. (145,086) $ (1,487,865)
---------- ------------
---------- ------------
<CAPTION>
Class C
<S> <C> <C>
Six months ended
February 28, 1995
Shares sold...................... 1,244 $ 12,684
Shares issued in reinvestment
of dividends and
distributions.................. 137 1,390
Shares reacquired................ (8,221) (82,615)
-------- -----------
Net decrease in shares
outstanding.................... (6,840) $ (68,541)
-------- -----------
-------- -----------
August 1, 1994* through
August 31, 1994:
Shares sold...................... 9,549 $ 101,218
Shares issued in reinvestment
of dividends................... 3 31
-------- -----------
Net increase in shares
outstanding.................... 9,552 $ 101,249
-------- -----------
-------- -----------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-12-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year
Ended August 31, through
February 28,
- --------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------ ------
------ ------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 10.66 $11.64 $11.11
$10.67 $10.23 $ 10.44
------------ ------ ------
------ ------ -----------
Income from investment operations
Net investment income..................... .28@ .57 .62
.63 .67 .40
Net realized and unrealized gain (loss) on
investment transactions................. (.11) (.77) .65
.44 .44 (.21)
------------ ------ ------
------ ------ -----------
Total from investment operations........ .17 (.20) 1.27
1.07 1.11 .19
------------ ------ ------
------ ------ -----------
Less distributions
Dividends from net investment income...... (.28) (.57)
(.62) (.63) (.67) (.40)
Distributions from net realized gains..... (.10) (.21)
(.12) -- -- --
------------ ------ ------
------ ------ -----------
Total distributions..................... (.38) (.78)
(.74) (.63) (.67) (.40)
------------ ------ ------
------ ------ -----------
Net asset value, end of period............ $ 10.45 $10.66 $11.64
$11.11 $10.67 $ 10.23
------------ ------ ------
------ ------ -----------
------------ ------ ------
------ ------ -----------
TOTAL RETURN#:............................ 1.76% (1.75)%
11.89% 10.35% 10.84% 1.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $ 20,468 $2,709 $2,930
$1,335 $ 804 $ 349
Average net assets (000).................. $ 4,592 $2,877 $2,068
$1,080 $ 518 $ 141
Ratios to average net assets:
Expenses, including distribution fees... 1.07%*@ .95%
.96% .96% 1.10% 1.01%*
Expenses, excluding distribution fees... .97%*@ .85%
.86% .86% 1.00% .91%*
Net investment income................... 5.72%*@ 5.18%
5.51% 5.80% 6.07% 6.31%*
Portfolio turnover rate................... 20% 40%
41% 34% 18% 46%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
@ Net of management fee waiver.
See Notes to Financial Statements.
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
- --------------------------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- -------------------------------------------------------
1995 1994
1993 1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ -------
- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 10.67 $ 11.65 $
11.12 $ 10.68 $ 10.23 $ 10.48
------------ -------
- ------- ------- ------- -------
Income from investment operations
Net investment income..................... .26@ .53
.58 .59 .63 .62
Net realized and unrealized gain (loss) on
investment transactions................. (.10) (.77)
.65 .44 .45 (.25)
------------ -------
- ------- ------- ------- -------
Total from investment operations........ .16 (.24)
1.23 1.03 1.08 .37
------------ -------
- ------- ------- ------- -------
Less distributions
Dividends from net investment income...... (.26) (.53)
(.58) (.59) (.63) (.62)
Distributions from net realized gains..... (.10) (.21)
(.12) -- -- --
------------ -------
- ------- ------- ------- -------
Total distributions..................... (.36) (.74)
(.70) (.59) (.63) (.62)
------------ -------
- ------- ------- ------- -------
Net asset value, end of period............ $ 10.47 $ 10.67 $
11.65 $ 11.12 $ 10.68 $ 10.23
------------ -------
- ------- ------- ------- -------
------------ -------
- ------- ------- ------- -------
TOTAL RETURN#:............................ 1.66% (2.13)%
11.43% 9.90% 10.49% 3.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $27,053 $51,198
$57,598 $51,313 $51,110 $48,226
Average net assets (000).................. $43,906 $55,223
$53,780 $50,970 $48,422 $48,573
Ratios to average net assets:
Expenses, including distribution fees... 1.44%*@ 1.35%
1.36% 1.37% 1.49% 1.40%
Expenses, excluding distribution fees... .94%*@ .85%
.86% .87% .99% .92%
Net investment income................... 5.05%*@ 4.77%
5.11% 5.42% 5.70% 5.95%
Portfolio turnover rate................... 20% 40%
41% 34% 18% 46%
<CAPTION>
Class C
August 1,
Six Months 1994D
Ended through
February 28, August 31,
1995 1994
<S> <C> <C>
------------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 10.67 $ 10.70
------------ ----------
Income from investment operations
Net investment income..................... .25@ .05
Net realized and unrealized gain (loss) on
investment transactions................. (.10) (.03)
------------ ----------
Total from investment operations........ .15 .02
------------ ----------
Less distributions
Dividends from net investment income...... (.25) (.05)
Distributions from net realized gains..... (.10) --
------------ ----------
Total distributions..................... (.35) (.05)
------------ ----------
Net asset value, end of period............ $ 10.47 $ 10.67
------------ ----------
------------ ----------
TOTAL RETURN#:............................ 1.53% .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $28 $102
Average net assets (000).................. $72 $31
Ratios to average net assets:
Expenses, including distribution fees... 1.68%*@ 2.21%*
Expenses, excluding distribution fees... .93%*@ 1.47%*
Net investment income................... 4.82%*@ 4.75%*
Portfolio turnover rate................... 20% 40%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than
a full year are not annualized.
@ Net of management fee waiver.
See Notes to Financial Statements.
-14-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995,
were not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
74435M705 MF125E2
74435M804 (LOGO) Cat. #6420935
74435M572
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ------------------------
(ICON)
Massachusetts Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and newly-issued
tax-exempt bonds became scarce. We are pleased to report that your Prudential
Municipal Series Fund -- Massachusetts Series has earned a positive total
return, performing better than the average Massachusetts municipal bond fund as
measured by Lipper Analytical Services, Inc.
Less Means More...
For You!
Prudential mutual fund shareholders will be seeing total returns increase in
the months to come, thanks to a reduction in Fund management expenses.
Prudential Mutual Funds lowered the rate on January 1, 1995, to 0.45% from
0.50%. It is our way of showing you that we appreciate your business and that
we remain committed to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.6% 2.2% 45.8% N/A 46.2%
Class B 3.3 1.6 42.6 115.8 125.0
Class C 3.1 N/A N/A N/A 3.0
Lipper MA
Muni. Avg3 2.6 0.53 45.52 128.32 142.73
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A -0.8% 7.2% N/A 7.1%
Class B -3.4 7.2 8.0 8.1
Class C N/A N/A N/A 2.04
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Series charges a maximum front-end sales load of 3% for Class A
shares. Class B shares are subject to a contingent deferred sales charge of
5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1% CDSC for one
year. Class B shares will automatically convert to Class A shares on a
quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/25/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 40 funds for six months, 36 funds for one
year, 18 funds for five years, 4 funds for 10 years, and 4 funds since
inception of Class B shares on 9/25/84.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Massachusetts state and federal
income taxes consistent with preservation of principal. Certain taxpayers may
be subject to the federal alternative minimum tax, however. The Series will
invest primarily in Massachusetts state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and Guam), the income from which is also exempt from federal and
Massachusetts state income taxes.
On the Hill...
In 1995, Congress will most likely consider an initiative that would restore
full income tax deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In addition, Congress may also
consider the creation of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual Funds supports both of
these proposals, and we urge you to share your opinion with your Congressional
representatives. We will keep you updated on these initiatives as they make
their way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds rate
(the interbank overnight lending rate), investors began to believe that the
economy was showing signs of slowing. As a result, long-term interest rates
in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In fact,
on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its lowest
since last June. That's more than a full percentage point below its 1994
high -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and those
with lower coupons, sometimes called premium and discount bonds. The higher
yielding premium bonds help cushion the impact of rising interest rates while
the lower coupon or discount bonds offer price appreciation potential when
interest rates decline.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many issuers
reluctant to borrow money. In fact, the Revenue Bond Index rose dramatically
to 6.9% from 5.5% -- nearly one and a half percentage points. As a result, the
level of new bonds issued nationwide fell by 44% and in Massachusetts by 52%
-2-
<PAGE>
Massachusetts: Economy Recovers, Finances Stabilize.
The economic recovery in Massachusetts is continuing, albeit at a slower
pace than the nation's. Overall employment growth is projected at 1.6% in 1995
and 1.4% in 1996, after the state lost 10% of its jobs from 1988 to 1992.
Recent growth has been in business services jobs, such as computer software,
engineering, management consulting and biomedical research.
The state's finances have also stabilized. The government is budgeting
conservatively -- the state closed out its 1994 budget year with a modest $18
million surplus. Still, Governor William Weld will face fiscal challenges in
making good on his pledge not to raise taxes. Debt service payments are
high -- the state has one of the highest debt loads in the nation. What's
more, the state Supreme Court has ordered the state to increase spending for
education by about $200 million a year for the next several years.
Fund Update
Starting in February 1995, Class B shareholders may have begun to notice a
change in their Fund holdings. That's when Class B shares began to automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. As you may know, Class A shares generally carry lower annual
distribution expenses than Class B shares. Accordingly, after conversion you
will earn higher total returns on your investment than you would have as a
Class B shareholder.
Following the May cycle, conversions of eligible Class B shares and special
exchanges of Class B and C shares will take place each calendar quarter
(March, June, September and December) starting in September 1995.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last six
months in total return. That is a substantial relief to investors who weathered
sharply rising interest rates and falling bond prices in 1994.
We believe long-term interest rates will stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we expect the supply of
tax-exempt municipals to continue to contract, which should also provide an
additional reward to investors by supporting prices.
As always, it is a pleasure to work for you. We thank you for remaining with
the Prudential Municipal Series Fund -- Massachusetts Series through a most
difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Carol A. Wrocklage
Portfolio Manager
-3-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds chief
fixed income strategist Dennis Bushe about why bonds and bond mutual funds may
make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest
rate minus the inflation rate) are still very high historically. According
to Ibbotson Associates, a nationally recognized investment analysis firm,
the annual inflation-adjusted return on bonds from 1926 to 1994 was between
2.5% and 3.0%. Today's investors receive over 4.5% in total
inflation-adjusted, annualized total return. Of course, these numbers
are just for illustration, but they show how much higher interest rates
improve bond total returns when inflation is only 2.7%, as measured by the
Consumer Price Index. And beating inflation is one primary goal of
long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course you
can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help
manage this risk, and that may be especially important in 1995. First of
all, if the U.S. economy is beginning to slow down, as many economists
believe, then credit quality is a concern. A credit team becomes very
valuable, carefully selecting bonds in different sectors and industries for
bond portfolios. In addition, few individual investors have the resources or
clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled issuers --
a
bond fund does. Finally, the diversification of a bond fund may help
investors avoid wide price swings if one holding does experience financial
difficulties.
-4-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
MASSACHUSETTS SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--99.3%
Boston Ind. Dev. Fin.
Auth.,
Swr. Fac. Rev., Harbor
Elec.
Energy Co. Proj.,
Baa1 $1,500 7.375%, 5/15/15.......... $1,556,220
Boston Mass., Gen.
Oblig., Ser. A,
Aaa 2,000D 7.375%, 2/1/10,
A.M.B.A.C.............. 2,227,040
Boston, Gen. Oblig.,
Boston City Hosp.,
Aa 2,000 5.75%, 2/15/23........... 1,843,840
Boston Wtr. & Swr. Comn.
Rev.,
A 495D 7.875%, 11/1/13, Ser.
A...................... 530,135
A 875 7.875%, 11/1/13, Ser.
A...................... 929,994
Brockton Mass.,
Baa 1,030 6.125%, 6/15/18.......... 992,199
Gloucester Mass.,
Gen. Oblig.,
Aaa 2,000 5.50%, 11/15/13,
F.S.A.................. 1,905,520
Holyoke, Gen. Oblig.,
Sch. Proj.,
Aaa 700 8.10%, 6/15/05,
M.B.I.A................ 827,358
Lowell, Gen. Oblig.,
Baa1 750D 7.625%, 2/15/10.......... 858,817
Lynn Wtr. & Swr. Comn.,
Gen. Rev., Ser. A,
Aaa 2,100D 7.25%, 12/1/10,
M.B.I.A................ 2,354,037
Mass. Bay Trans. Auth.,
A1 750 6.10%, 3/1/23, Ser. C.... 745,995
Mass. St. Gen. Oblig.,
A1 665 Zero Coupon, 8/1/06, Ser.
A...................... 349,125
Mass. St. Hlth. & Edl.
Facs. Auth. Rev.,
Gen. Oblig.,
Aaa 1,500 6.00%, 8/1/09, Ser. C,
F.G.I.C................ 1,539,285
Bentley Coll.,
A 1,325D 8.125%, 7/1/17, Ser. G... 1,368,261
Beth Israel Hosp.,
Aaa 1,500 7.813%, 7/1/25,
A.M.B.A.C.............. 1,449,375
Faulkner Hosp.,
Baa1 1,500 6.00%, 7/1/23............ 1,277,145
Holyoke Hosp. Rev.,
Baa1 1,500 6.50%, 7/1/15............ 1,369,215
Mass. St. Hlth. & Edl.
Facs. Auth. Rev.,
Jordan Hosp.,
A-* $ 1,850 6.875%, 10/1/22.......... $1,855,624
Lahey Clinic, Ser. B,
Aaa 450 5.375%, 7/1/23,
M.B.I.A................ 402,881
New England Med. Ctr.,
A1 1,175D 7.875%, 7/1/11, Ser. E... 1,297,576
Newton-Wellesley Hosp.,
Aaa 2,000 8.00%, 7/1/18, Ser. C,
B.I.G.................. 2,193,500
Northeastern Univ., Ser.
D,
Aaa 1,500 7.125%, 10/1/10,
A.M.B.A.C.............. 1,619,175
St. Elizabeth Hosp.,
AA* 1,200D** 7.75%, 8/1/27, Ser. B,
F.H.A.................. 1,302,600
Tufts Univ.,
Aaa 1,235D 7.40%, 8/1/18, Ser. C.... 1,351,695
Valley Regl. Hlth. Sys.,
AAA* 825 7.00%, 7/1/10............ 911,270
Aaa 1,000D 8.00%, 7/1/18, Ser. B.... 1,148,020
Winchester Hosp.,
AAA* 2,000 5.75%, 7/1/24............ 1,861,040
Mass. St. Hsg. Fin. Agcy. Hsg. Rev.,
Insured Rental, Ser. A,
Aaa 500 6.65%, 7/1/19,
A.M.B.A.C.............. 512,750
Sngl. Fam. Mtge.,
Aa 1,755 8.10%, 12/1/14, Ser. 6... 1,870,865
Aa 415 9.50%, 12/1/16, Ser.
1985A.................. 433,418
Aa 985 7.125%, 6/1/25, Ser.
21..................... 1,014,747
Mass. St. Ind. Fin. Agcy.
Rev.,
Brooks Sch.,
A 640 5.95%, 7/1/23............ 615,398
Cape Cod Hlth. Sys.,
Aaa 2,000D 8.50%, 11/15/20.......... 2,357,640
Merrimack College,
BBB-* 990 7.125%, 7/1/12........... 1,020,819
Springfield College,
Baa1 900 5.625%, 9/15/10.......... 836,073
Mass. St. Indl. Fin.
Agcy.,
Poll. Ctrl. Rev.,
Eastern
Edison Co. Project,
Baa2 1,000 5.875%, 8/1/08........... 933,500
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Mass. St. Port. Auth.
Rev.,
AA $260 9.375%, 7/1/15, Ser. B... $271,708
Mass. St. Wtr. Res.
Auth.,
A 800 5.75%, 12/1/21, Ser.
A,..................... 758,160
Aa 1,000 6.375%, 2/1/15........... 1,028,050
Med Academic Scientific
A,
A-* 1,000 6.625%, 1/1/15........... 980,970
Palmer, Gen. Oblig., Ser.
F,
Aaa 500 D 7.30%, 3/1/10,
A.M.B.A.C.............. 556,315
Plymouth Cnty. Corr. Facs. Proj.,
Cert. of Part.,
A-* 500 7.00%, 4/1/22, Ser. A.... 527,815
Puerto Rico Aqueduct &
Swr. Auth. Rev.,
Aaa 400 ** 10.25%, 7/1/09, E.T.M.... 537,140
Puerto Rico Comnwlth.,
Gen. Oblig.,
Baa1 1,000 5.25%, 7/1/18............ 889,160
Aaa 250 7.00%, 7/1/10,
M.B.I.A................ 284,575
Aaa 1,000 7.00%, 7/1/10,
A.M.B.A.C.............. 1,138,300
Aaa 1,250 DD 7.432%, 7/1/20, F.S.A.... 1,193,750
Puerto Rico Elec. Pwr.
Auth. Rev.,
Baa1 450 7.00%, 7/1/06, Ser. S.... 489,290
Puerto Rico Hsg. Fin.
Corp.,
Bank & Fin. Agcy.,
Baa 750 5.125%, 12/1/05.......... 683,452
Virgin Islands Pub. Fin.
Auth. Rev.,
Hwy. Trans. Trust Fund,
NR 400 7.25%, 10/1/18, Ser. A... 413,064
-----------
Total long-term
investments
(cost $52,091,549)..... 55,413,901
-----------
SHORT-TERM INVESTMENTS--1.3%
Mass. Comnwlth., Ded.
Inc.Tax, F.R.D.D.,
VMIG1 $400 3.65%, 3/1/95, Ser.
90B.................... $400,000
Mass. Ind. Fin. Agcy.
Ind. Rev.,
Showa Womens Inst. Inc.,
F.R.D.D.,
VMIG1 300 3.75%, 3/1/95, Ser. 94... 300,000
-----------
Total short-term
investments
(cost $700,000)........ 700,000
-----------
Total Investments--100.6%
(cost $52,791,549; Note
4)..................... 56,113,901
Liabilities in excess of
other
assets--(0.6%)......... (311,341)
-----------
Net Assets--100%......... $55,802,560
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Association.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of these securities are considered
to be the later of the next date on which the
security can be redeemed at par, or the next date
on which the rate of interest is adjusted.
* Standard & Poor's rating.
** Principal amount segregated as collateral for
future contracts.
D Prerefunded issues are secured by escrowed cash
and direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate. The
rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of Moody's and Standard & Poor's ratings.
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$52,791,549)............................................... $56,113,901
Interest
receivable....................................................................
761,208
Receivable for Fund shares
sold........................................................ 72,355
Deferred expenses and other
assets..................................................... 16,343
-----------------
Total
assets.........................................................................
56,963,807
-----------------
Liabilities
Payable for investments
purchased...................................................... 978,323
Payable for Fund shares
reacquired..................................................... 126,419
Dividends
payable......................................................................
19,503
Due to
Manager.........................................................................
19,018
Due to
Distributors....................................................................
14,778
Due to broker-variation
margin......................................................... 1,906
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities....................................................................
1,161,247
-----------------
Net
Assets.......................................................................
...... $55,802,560
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 48,871
Paid-in capital in excess of
par..................................................... 53,061,844
-----------------
53,110,715
Accumulated net realized loss on
investments......................................... (596,663)
Net unrealized appreciation on
investments........................................... 3,288,508
-----------------
Net assets, February 28,
1995........................................................ $55,802,560
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($25,987,668 / 2,275,180 shares of beneficial interest issued and
outstanding)..... $11.42
Maximum sales charge (3% of offering
price).......................................... .35
-----------------
Maximum offering price to
public..................................................... $11.77
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($29,799,045 / 2,610,518 shares of beneficial interest issued and
outstanding)..... $11.41
-----------------
-----------------
Class C:
Net asset value, offer price and redemption price per share
($15,846.45 / 1,388.214 shares of beneficial interest issued and
outstanding)...... $11.41
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest............................ $1,876,488
------------
Expenses
Management fee, net of waiver of
$2,114............................ 133,275
Distribution fee--Class A........... 2,507
Distribution fee--Class B........... 122,987
Distribution fee--Class C........... 48
Custodian's fees and expenses....... 42,000
Transfer agent's fees and
expenses.......................... 19,000
Registration fees................... 10,000
Audit fee........................... 5,300
Legal fees.......................... 5,000
Shareholder reports expense......... 5,000
Trustees' fees...................... 1,600
Miscellaneous....................... 2,713
------------
Total expenses.................... 349,430
------------
Net investment income................. 1,527,058
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............. (179,514)
Financial futures contract
transactions...................... 6,744
------------
(172,770)
------------
Net change in unrealized
appreciation/depreciation on:
Investments......................... 359,100
Financial futures contracts......... (33,844)
------------
325,256
------------
Net gain on investments............... 152,486
------------
Net Increase in Net Assets
Resulting from Operations............. $1,679,544
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) in February 28, August 31,
Net Assets 1995 1994
------------ -----------
<S> <C> <C>
Operations
Net investment income.... $ 1,527,058 $ 3,240,965
Net realized loss on
investment
transactions........... (172,770) (262,240)
Net change in unrealized
appreciation/depreciation
of investments......... 325,256 (3,647,136)
------------ -----------
Net increase (decrease)
in net assets resulting
from operations........ 1,679,544 (668,411)
------------ -----------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A................ (159,200) (144,412)
Class B................ (1,367,514) (3,096,493)
Class C................ (344) (60)
------------ -----------
(1,527,058) (3,240,965)
------------ -----------
Distributions from net
realized gains
Class A................ -- (16,934)
Class B................ -- (376,754)
------------ -----------
-- (393,688)
------------ -----------
Series share transactions
(net of share
conversions) (Note 5):
Net proceeds from shares
sold................... 1,522,651 7,355,596
Net asset value of shares
issued in reinvestment
of dividends........... 902,247 2,173,313
Cost of shares
reacquired............. (4,488,070) (10,958,113)
------------ -----------
Net decrease in net
assets from Series
share transactions..... (2,063,172) (1,429,204)
------------ -----------
Total decrease............. (1,910,686) (5,732,268)
Net Assets
Beginning of period........ 57,713,246 63,445,514
------------ -----------
End of period.............. $ 55,802,560 $57,713,246
------------ -----------
------------ -----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Massachusetts Series (the ``Series'')
commenced investment operations in September, 1984. The Series is diversified
and seeks to achieve its investment objective of obtaining the maximum amount
of
income exempt from federal and applicable state income taxes with the minimum
of
risk by investing in ``investment grade'' tax-exempt securities whose ratings
are within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. The Series invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities or
securities the Series intends to purchase against fluctuations in value caused
by changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
-9-
<PAGE>
<PAGE>
These differences are primarily due to differing treatments for short-term
capital gains and market discount.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$2,114. The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $1,700 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $39,400 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the six months ended February 28, 1995, the Series incurred fees of
approximately $13,500 for the services of PMFS. As of February 28, 1995,
approximately $2,400 of such fees were due to PMFS. Transfer agent fees and
expenses in the statement of operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995, were $11,718,000 and $12,690,746, respectively.
At February 28, 1995 the Series sold 1 financial future contract on the
Municipal Bond Index which expires in March 1995 and sold 40 financial futures
contracts on U.S. Treasury Bonds which expire in March 1995. The value at
disposition of such contracts was $472,719. The value of such contracts on
February 28, 1995 was $506,563, thereby resulting in an unrealized loss of
$33,844.
The cost basis of investments for federal income tax purposes, at February
28, 1995, was net unrealized appreciation of investments, including short-term
investments for federal income tax purposes was $3,215,212 (gross unrealized
appreciation--$3,594,787, gross unrealized depreciation--$379,575).
The Fund will elect to treat net capital losses of approximately $305,000
incurred in the four month period ended August 31, 1994 as having been incurred
in the following fiscal year.
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase commencing on or about February 1995.
-10-
<PAGE>
<PAGE>
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------- -------------- -----------
<S> <C> <C>
Year ended February 28, 1995:
Shares sold.................... 7,613 $ 84,204
Shares issued in reinvestment
of distributions............. 7,904 88,579
Shares reacquired.............. (28,185) (312,637)
-------------- -----------
Net decrease in shares
outstanding before
conversion................... (12,668) (139,854)
Shares issued upon conversion
from Class B................. 2,086,178 23,427,775
-------------- -----------
Net increase in shares
outstanding.................. 2,073,510 $23,287,921
-------------- -----------
-------------- -----------
Year ended August 31, 1994:
Shares sold.................... 79,658 $ 955,193
Shares issued in reinvestment
of dividends................. 7,338 86,177
Shares reacquired.............. (76,352) (888,834)
-------------- -----------
Net increase in shares
outstanding.................. 10,644 $ 152,536
-------------- -----------
-------------- -----------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------ -------------- ------------
<S> <C> <C>
Year ended February 28, 1995:
Shares sold................... 128,669 $ 1,423,439
Shares issued in reinvestment
of distributions............ 74,271 813,288
Shares reacquired............. (381,350) (4,175,373)
-------------- ------------
Net decrease in shares
outstanding before
conversion.................. (178,410) (1,938,646)
Shares reacquired upon conver-
sion into Class A........... (2,088,036) (23,427,767)
-------------- ------------
Net decrease in shares
outstanding................. (2,266,446) $(25,366,413)
-------------- ------------
-------------- ------------
Year ended August 31, 1994:
Shares sold................... 533,589 $ 6,293,496
Shares issued in reinvestment
of dividends................ 177,548 2,087,119
Shares reacquired............. (857,454) (9,963,041)
-------------- ------------
Net decrease in shares
outstanding................. (146,317) $ (1,582,426)
-------------- ------------
-------------- ------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Six months ended February 28, 1995:
Shares sold................... 1,340 $ 15,008
Shares issued in reinvestment
of dividends and
distributions............... 35 380
Shares reacquired............. (6) (60)
-------------- ------------
Net increase in shares
outstanding................. 1,369 $ 15,328
-------------- ------------
-------------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 9,403 $ 106,907
Shares issued in reinvestment
of dividends................ 1 17
Shares reacquired............. (9,385) (106,238)
-------------- ------------
Net increase in shares
outstanding................. 19 $ 686
-------------- ------------
-------------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-11-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- -----------------------------------------------------------------------------
- ----
January 22,
Six Months
1990D
Ended Year Ended August 31,
through
February 28,
- ----------------------------------------------- August 31,
1995** 1994 1993 1992
1991 1990
<S> <C> <C> <C> <C>
<C> <C>
------------ ------------ ------- -------
------ ------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............... $ 11.37 $12.17 $ 11.50 $ 10.94
$10.44 $10.70
------------ ------ ------ -------
------- ------
Income from investment
operations
Net investment
income............... .33 .67 .68 .69
.70 .41
Net realized and
unrealized gain
(loss) on investment
transactions......... .05 (.73) .67 .56
.50 (.26)
------------ ------ ------- -------
------ ------
Total from investment
operations......... .38 (.06) 1.35 1.25
1.20 .15
------------ ------ ------- -------
------ ------
Less distributions
Dividends from net
investment income.... (.33) (.67) (.68)
(.69) (.70) (.41)
Distributions from net
realized gains....... -- (.07) --
- -- -- --
------------ ------ ------- -------
------ ------
Total
distributions...... (.33) (.74) (.68)
(.69) (.70) (.41)
------------ ------ ------- -------
------ ------
Net asset value, end of
period............... $ 11.42 $11.37 $ 12.17 $ 11.50
$10.94 $10.44
------------ ------ ------- -------
------ ------
------------ ------ ------- -------
------ ------
TOTAL RETURN#:......... 3.55% (.58)% 12.10%
11.76% 11.81% 1.41%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)......... $ 25,988 $2,293 $ 2,325 $ 903
$ 665 $ 257
Average net assets
(000)................ $ 5,056 $2,578 $ 1,336 $ 770
$ 344 $ 127
Ratios to average net
assets:
Expenses, including
distribution
fees............... .95%* .87% .95%
.99% 1.05% 1.04%*
Expenses, excluding
distribution
fees............... .85%* .77% .85%
.89% .95% .95%*
Net investment
income............... 6.35%* 5.60% 5.79%
6.14% 6.53% 6.60%*
Portfolio turnover..... 22% 33% 56%
32% 34% 33%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a full
year are not annualized.
** Net of management fee waiver.
See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
Class C
- -------------------------------------------------------------------------
- -----------------------
Six
Six
Months
Months August 1,
Ended
Ended 1994DD
February Year Ended August 31,
February through
28,
- ------------------------------------------------------------ 28,
August 31,
1995** 1994 1993 1992
1991 1990 1995** 1994
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
-------- -------- -------- --------
- -------- -------- -------- ----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of
period............... $ 11.36 $ 12.17 $ 11.49 $ 10.94
$ 10.44 $ 10.74 $ 11.36 $11.41
-------- -------- -------- --------
- -------- -------- -------- ----------
Income from investment
operations
Net investment
income............... .30 .61 .63 .64
.65 .65 .29 .04
Net realized and
unrealized gain
(loss) on investment
transactions......... .05 (.74) .68 .55
.50 (.30) .05 (.05)
-------- -------- -------- --------
- -------- -------- -------- ----------
Total from investment
operations......... .35 (.13) 1.31 1.19
1.15 .35 .34 (.01)
-------- -------- -------- --------
- -------- -------- -------- ----------
Less distributions
Dividends from net
investment income.... (.30) (.61) (.63) (.64)
(.65) (.65) (.29) (.04)
Distributions from net
realized gains....... -- (.07) -- --
-- -- -- --
-------- -------- -------- --------
- -------- -------- -------- ----------
Total
distributions...... (.30) (.68) (.63) (.64)
(.65) (.65) (.29) (.04)
-------- -------- -------- --------
- -------- -------- -------- ----------
Net asset value, end of
period............... $ 11.41 $ 11.36 $ 12.17 $ 11.49
$ 10.94 $ 10.44 $ 11.41 $11.36
-------- -------- -------- --------
- -------- -------- -------- ----------
-------- -------- -------- --------
- -------- -------- -------- ----------
TOTAL RETURN#:......... 3.32% (1.15)% 11.77% 11.23%
11.38% 3.40% 3.14% (0.27)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)......... $ 29,799 $ 55,420 $ 61,121 $ 53,449
$ 49,641 $ 50,575 $ 16 $ 216@
Average net assets
(000)................ $ 49,602 $ 59,544 $ 55,965 $ 50,607
$ 49,083 $ 52,974 $ 13 $ 15
Ratios to average net
assets:
Expenses, including
distribution
fees............... 1.32%* 1.27% 1.35% 1.39%
1.45% 1.37% 1.57%* 1.57%*
Expenses, excluding
distribution
fees............... .82%* .77% .85% .89%
.95% .90% .82%* .82%*
Net investment
income............... 5.56%* 5.20% 5.39% 5.74%
6.13% 6.21% 5.40%* 5.06%*
Portfolio turnover..... 22% 33% 56% 32%
34% 33 22% 33%
</TABLE>
- ---------------
* Annualized.
DD Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
@ Figures are actual and not rounded to the nearest thousand.
** Net of management fee waiver.
See Notes to Financial Statements.
-13-
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435M655
74435M663 MF119E2
74435M564 (LOGO) Cat. #642985K
<PAGE>
S E M I - A N N U A L R E P O R T February 28, 1995
Prudential
Municipal
Series Fund
(ICON)
Massachusetts
Money Market Series
(LOGO)
<PAGE>
Letter to
Shareholders
-------------------------------------------------------------
April 3, 1995
Dear Shareholder:
Over the past six months, the Federal Reserve has been busy raising short-term
interest rates, which had a positive effect on both the taxable and tax-exempt
money markets. We are pleased to report that the yield on your Prudential
Municipal Series Fund -- Massachusetts Money Market Series increased more than
one full percentage point to 3.4% from 2.3%, performing in line with the
11-fund, Donoghue Massachusetts tax-exempt money fund average of 3.4%.
<TABLE>
SERIES' PERFORMANCE
As of February 28, 1995
<CAPTION>
7-Day
Weighted
Net Current Tax Equivalent Yield
Average
Assets (mil.) Yield @31% @36% @39.6%
Maturity
<S> <C> <C> <C> <C> <C> <C>
Mass. Money
Market Series $36.9 3.4% 5.6% 6.0% 6.4% 74
days
Donoghue Ma.
Tax-Exempt Funds* N/A 3.4% 5.6% 6.0% 6.4% 41
days
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee of future results. An investment in the Series is neither insured
nor guaranteed by the U.S. government and there can be no assurance that the
Series will be able to maintain a stable net asset value.
* Donoghue returns as of 2/27/95.
Fund Overview.
Your Massachusetts Money Market Series seeks to provide a high level of income
which is exempt from Massachusetts and federal income taxes, while maintaining
a
stable net asset value of $1 per share. There can be no assurance that the
Series' investment objective will be achieved. The Series invests primarily in
high quality, short-term, tax-exempt Massachusetts state, municipal and local
bonds and bonds from other qualifying issuers.
The Federal Reserve Tightens.
The U.S. economy grew in 1994 at the robust annual rate approximating 4%, a
stronger rate than many had anticipated as the year began. Three million new
jobs were created during the year and consumer confidence was at a
-1-
<PAGE>
On the Hill:
In 1995, Congress will most likely consider an initiative that would restore
full income tax deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In addition, Congress may also
consider the creation of a new tax-deferred savings account called the "American
Dream Savings Account." Prudential Mutual Funds supports both of these
proposals, and we urge you to share your opinion with your Congressional
representatives. We will keep you updated on these initiatives as they make
their way through the legislative process.
four-year high. Fearing that this dramatic growth would increase inflation, the
Federal Reserve started to increase short-term interest rates. By February
1995, the central bank had increased the federal funds rate (the overnight
interbank lending rate) seven times, doubling the rate to 6% from 3% in a year.
There were some indications in late February that the Federal Reserve was having
some success in slowing economic growth. Inflation remains below 3%, with no
signs of rising anytime soon. Commodities prices (one precursor of inflation)
have traded within an acceptable range throughout the year, while wages (another
leading indicator) have stayed flat. With economic growth slowing, we don't
expect wage and price pressures to develop any time soon.
Rising Rates Were Good.
Rising rates were good news for the Massachusetts Money Market Series. The
Series' seven-day current yield on February 28, 1995 stood at 3.4%, which is
more than one full percentage point higher than the 2.3% recorded on August 31,
1994. An individual in the 39.6% federal tax bracket would have to have earned
about 6.4% from a taxable investment to match this return.
The Series, anticipating that interest rates would rise, maintained a shorter
weighted average maturity (WAM) to take advantage of higher rates. After the
central bank moved, we selectively extended the maturity of the portfolio. As
of February 28, WAM stood at 74 days, compared to 41 days for the Donoghue
average.
Seasonal Factors Affect The Municipal Market, Too.
While rising short-term interest rates in the taxable market affect the
tax-exempt market, it takes time before the full impact is felt. In addition,
the municipal market is more sensitive to seasonal supply and demand factors
that cause volatility in short-term, tax-exempt rates.
For example, 7-day securities in the national tax-free market at the end of
December yielded almost 6% on an annualized basis, as investors withdrew money
for holiday spending. This drove the supply of short-term bonds up, prices down
and yields higher. The reverse occurred by mid January as assets flowed again
into tax-exempt funds lowering yields to 3%. There are other times when this
seasonal factor occurs, such as in April when income taxes are due, and
investors liquidate some of their money market positions to pay their tax bills.
Massachusetts Up Close
Massachusetts' economy continues to recover from the recessionary period of the
early 1990s, albeit slower than the rest of the nation. Employment growth is
expected to be a modest 1.6% this year and 1.4% in 1996. The state
-2-
<PAGE>
government continues to budget conservatively and finances appear to have
stablized.
However fiscal challenges remain. Debt service (the state carries one of the
highest debt loads in the nation) and a recent state supreme court ruling
ordering additional expenditures on education (about $200 million per year)
are two factors that will impact future state budgets.
The Series continues to emphasize value and quality. At year end 1994 we
purchased pre-refunded securities, backed by the U.S. government, from the
Massachusetts Health & Education Department for Harvard University, which we
believed were very attractive. Because of a short supply of quality
Massachusetts debt securities, we found opportunity outside the state in
February 1995 to purchase quality short-term paper. On February 28, 1995,
about 1.3% of the Series' total net assets were from out-of-state investments.
The Outlook.
We believe 1995 should be a positive year for money market investors
highlighted by moderate U.S. economic growth at a rate that is manageable.
Inflation may edge up a bit, but an increase has already been discounted by
the markets. Even so, we anticipate that the Federal Reserve will continue to
adjust interest rates into the second quarter before they call it quits and
consider their anti-inflationary campaign a success.
As always, it is a pleasure to work for you. We are pleased to be able to
report this news to you and thank you for the confidence you have shown in us
by choosing the Prudential Municipal Series Fund -- Massachusetts Money Market
Series.
Sincerely,
Lawrence C. McQuade
President
Colleen Meehan
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
MASSACHUSETTS MONEY MARKET SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--82.7%
Boston Wtr. & Swr. Comn.,
Gen. Rev., F.R.W.D.,
VMIG1 $ 300 4.00%, 3/1/95, Ser.
85A.................... $ 300,000
Chicopee Mass., B.A.N.,
NR 1,200 4.25%, 8/1/95............ 1,201,690
Framingham Mass. Gen.
Oblig.,
Aa 250 7.00%, 8/15/95........... 253,281
Greenfield Mass.
Unlimited Tax Gen.
Oblig.,
Aaa 725 8.00%, 10/15/95.......... 738,358
Iowa Fin. Auth. Solid
Wst. Disp. Rev., Cedar
Riv. Paper Co. Proj. A,
F.R.D.D.,
A1+* 500 3.85%, 3/1/95, Ser.
94A.................... 500,000
Mass. Bay Trans. Auth.,
NR 1,200 4.00%, 3/6/95, Ser. A,
T.E.C.P................ 1,200,000
4.40%, 9/1/95, Ser. 84A,
S.E.M.O.T.............. 1,000,000
VMIG1 1,000
Mass. Comnwlth., Ded.
Inc.Tax, F.R.D.D.,
VMIG1 100 3.65%, 3/1/95, Ser.
90B.................... 100,000
VMIG1 400 3.65%, 3/1/95, Ser.
90D.................... 400,000
Mass. Gen. Oblig.,
VMIG1 1,000 4.10%, 3/1/95, Ser. D.... 1,000,000
Mass. Hlth. & Edl. Facs.
Auth. Rev.,
Boston University
NR 2,000 4.30%, 4/7/95, Ser 85H... 2,000,000
Harvard University,
4.00%, 3/7/95, Ser. 89L,
T.E.C.P................ 1,500,000
VMIG1 1,500
Aaa 1,000(D) 8.75%, 12/1/95, Ser.
85..................... 1,039,296
Mass. Hsg. Fin. Agcy.
Rev.,
F.R.W.D.S.,
VMIG1 1,900 4.25%, 3/2/95, Ser.
94A.................... 1,900,000
Mass. Ind. Fin. Agcy.
Ind. Rev.,
New England Deaconess
Proj., F.R.W.D.,
VMIG1 1,000 3.70%, 3/1/95, Ser.
93B.................... 1,000,000
Ocean Spray Cranberry,
A.N.N.O.T.,
A+* $ 1,700 4.30%, 10/15/95.......... $ 1,700,000
Showa Womens Inst. Inc.,
F.R.D.D.,
VMIG1 1,900 3.75%, 3/1/95, Ser. 94... 1,900,000
United Med. Corp.,
F.R.W.D.,
P1 900 4.15%, 3/1/95, Ser. 92... 900,000
Mass. Ind. Fin. Agcy.
Res. Rec. Rev., Ogden
Haverhill Proj.,
F.R.W.D.,
VMIG1 1,800 3.70%, 3/1/95, Ser.
92A.................... 1,800,000
Mass. Mun. Whsl. Elec.
Co.,
Pwr. Supply Sys. Rev.,
MIG1 1,500 4.00%, 3/1/95, Ser.
94C.................... 1,500,000
Mass. Wtr. Res. Auth.,
T.E.C.P.,
P-1 1,900 3.95%, 4/10/95........... 1,900,000
Middleborough Mass.,
Gen. Oblig.,
Aaa 415 5.00%, 4/15/95, Ser.
94..................... 415,748
Puerto Rico Comnwlth.,
Gov't. Dev. Bank.,
F.R.W.D.,
VMIG1 600 3.90%, 3/1/95, Ser. 85... 600,000
Puerto Rico Comnwlth.
Hwy. & Trans. Auth.
Rev., F.R.W.D.,
VMIG1 500 3.50%, 3/1/95, Ser. 85... 500,000
Puerto Rico Ind. Med. &
Environ. Facs.,
Inter Amer. Proj.,
T.E.C.P.,
VMIG1 200 4.00%, 5/1/95, Ser. 88... 200,000
Reynolds Metal Co. Proj.,
A.N.N.O.T.,
P1 1,000 4.00%, 9/1/95, Ser. 83
A...................... 1,000,000
Schering-Plough Corp.,
A.N.N.O.T.,
AAA* 2,000 4.35%, 12/1/95, Ser.
83A.................... 1,994,168
Revere Hsg. Auth.,
Multifamily Mtge. Rev.
Waters Edge Proj.,
F.R.W.D.,
A1+* 1,990 4.25%, 3/3/95, Ser.
91C.................... 1,990,000
-----------
Total Investments--82.7%
(amortized
cost--$30,532,541**) 30,532,541
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
<TABLE>
<CAPTION>
Value
Description (a) (Note 1)
<C> <C> <S> <C>
Other assets in excess of
liabilities--17.3%..... $ 6,391,468
-----------
Net Assets--100%......... $36,924,009
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.O.T.--Annual Optional Tender
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note #
F.R.W.D.--Floating Rate (Weekly) Demand Note #
S.E.M.O.T.--Semi-Monthly Tender Offer
T.E.C.P.--Tax-Exempt Commercial Paper
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par or the
next date on which the rate of interest is
adjusted.
* Standard & Poor's rating.
** The cost of securities for federal income tax
purposes is substantially the same as for financial
reporting purposes.
(D) Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
The Fund's current Statement of Additional Information
contains a description of Moody's and Standard & Poor's
ratings.
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at amortized cost which approximates market
value........................ $30,532,541
Cash.........................................................................
......... 76,334
Receivable for investments
sold....................................................... 5,507,744
Receivable for Fund shares
sold....................................................... 800,215
Interest
receivable...................................................................
243,881
Deferred
expenses.....................................................................
17,586
-----------------
Total
assets......................................................................
37,178,301
-----------------
Liabilities
Payable for Fund shares
reacquired.................................................... 190,861
Accrued
expenses......................................................................
41,697
Distribution fee
payable..............................................................
10,008
Dividends
payable.....................................................................
6,769
Due to
Manager........................................................................
3,657
Deferred Trustees'
fees...............................................................
1,300
-----------------
Total
liabilities.................................................................
254,292
-----------------
Net
Assets.......................................................................
..... $36,924,009
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.................................... $ 369,240
Paid-in capital in excess of
par.................................................... 36,554,769
-----------------
Net assets, February 28,
1995....................................................... $36,924,009
-----------------
-----------------
Net asset value, offering price and redemption price per share ($36,924,009
/
36,924,009 shares of
beneficial interest issued and outstanding; unlimited number of shares
authorized)..................................................................
..... $1.00
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest............................... $ 722,060
------------
Expenses
Management fee, net of waiver of
$75,827................................ 25,276
Distribution fee....................... 25,276
Custodian's fees and expenses.......... 31,000
Transfer agent's fees and expenses..... 13,000
Registration fees...................... 11,000
Reports to shareholders................ 10,000
Amortization of organization
expenses............................... 6,025
Audit fee.............................. 5,000
Legal fees............................. 5,000
Trustees' fees......................... 1,600
Miscellaneous.......................... 2,215
------------
Total expenses....................... 135,392
------------
Net investment income.................... 586,668
------------
Net Increase in Net Assets
Resulting from Operations................ $ 586,668
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) Six Months August 31,
in Net Assets Ended 1994
February 28, -------------
1995
------------
<S> <C> <C>
Operations
Net investment
income................. $ 586,668 $ 789,061
------------ -------------
Net increase in net
assets
resulting from
operations........... 586,668 789,061
------------ -------------
Dividends and
distributions to
shareholders (Note
1)..................... (586,668) (789,061)
------------ -------------
Fund share transactions
(at $1 per share)
Net proceeds from
shares
subscribed........... 91,520,059 147,907,523
Net asset value of
shares
issued to
shareholders in
reinvestment of
dividends and
distributions........ 570,380 757,067
Cost of shares
reacquired............. (92,444,534) (147,994,192)
------------ -------------
Net increase (decrease)
in net assets from
Fund share
transactions......... (354,095) 670,398
------------ -------------
Total increase
(decrease)............. (354,095) 670,398
Net Assets
Beginning of period...... 37,278,104 36,607,706
------------ -------------
End of period............ $ 36,924,009 $ 37,278,104
------------ -------------
------------ -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Massachusetts Money Market Series (the
``Series'') commenced investment operations on August 5, 1991. The Series is
non-diversified and seeks to provide the highest level of income that is exempt
from Massachusetts State, local and federal income taxes with the minimum of
risk by investing in ``investment grade'' tax-exempt securities having a
maturity of thirteen months or less and whose ratings are within the two highest
ratings categories by a nationally recognized statistical rating organization,
or if not rated, are of comparable quality. The ability of the issuers of the
securities held by the Series to meet their obligations may be affected by
economic developments in a specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting
policies followed by the Fund, and the Series, in
the preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium.
All securities are valued as of 4:30 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly. Income distributions and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles.
Deferred Organization Expenses: The Series incurred approximately $51,000 in
organization and initial registration expenses. Such amount has been deferred
and is being amortized over a period of 60 months ending July 1996.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series. For the
six months ended February 28, 1995, PMF voluntarily waived 75% of its management
fee. The amount of fees waived for the six months ended February 28, 1995
amounted to $75,827 ($.002 per share; .375% of average net assets, as
annualized).
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable monthly, at an annual rate of .125 of 1% of the Series'
average daily net assets. PMFD pays various broker-dealers, including Prudential
Securities Incorporated (``PSI'') and Pruco Securities Corporation, affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
-8-
<PAGE>
<PAGE>
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund
Transactions Services, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $12,000 for the services of PMFS. As of February 28, 1995,
approximately $2,000 of such fees were due to PMFS.
-9-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Six Moths
August 5, 1991*
Ended
Year Ended August 31, through
February 28,
- ------------------------------- August 31,
1995
1994 1993 1992 1991
------------
- ------- ------- ------- ---------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains(D)................ .014
.019 .021 .034 .003
Dividends and distributions to shareholders................ (.014)
(.019) (.021) (.034) (.003)
------------
- ------- ------- ------- ---------------
Net asset value, end of period............................. $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
- ------- ------- ------- ---------------
------------
- ------- ------- ------- ---------------
TOTAL RETURN#:............................................. 1.45%
1.89% 2.17% 3.44% 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................ $ 36,924
$37,278 $36,608 $18,019 $ 6,365
Average net assets (000)................................... $ 40,776
$42,427 $32,246 $15,477 $ 3,200
Ratio to average net assets:(D)
Expenses, including distribution fee..................... .669%**
.620% .365% .125% .125%**
Expenses, excluding distribution fee..................... .544%**
.495% .240% .00% .00%**
Net investment income.................................... 2.90%**
1.86% 2.11% 3.20% 4.46%**
</TABLE>
- ---------------
* Commencement of investment operations.
** Annualized.
(D) Net of management fee waiver and expense subsidy.
# Total return includes reinvestment of dividends and distributions. Total
returns for periods of less than a full year are not annualized.
See Notes to Financial Statements.
-10-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote', Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not audited
and, accordingly, no opinion is expressed on them.This report is not authorized
for distribution to prospective investors unless preceded or accompanied by a
current prospectus.
MF153E2
74435M630 (LOGO) Cat. #444525Y
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ----------------------------
(PICTURE)
Michigan Series
(LOGO)
<PAGE>
LETTER TO
SHAREHOLDERS
April 3, 1995
(GRAPH)
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued tax-exempt bonds became scarce. We are pleased to report
that your Prudential Municipal Series Fund -- Michigan Series has earned
a positive total return, performing better than the average Michigan
municipal bond fund as measured by Lipper Analytical Services, Inc.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.2% 1.9% 45.0% N/A 45.2%
Class B 3.0% 1.5% 42.2% 126.4% 139.0%
Class C 2.8% N/A N/A N/A 2.9%
Lipper MI
Muni. Avg3 2.7% 1.3% 44.2% 138.3% 151.8%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 3.4% 7.2% N/A 7.0%
Class B 1.1% 7.3% 8.6% 8.7%
Class C N/A N/A N/A 2.4%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investors shares, when
redeemed, may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3% for
Class A shares. Class B shares are subject to a contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1%
CDSC for one year. Class B shares will automatically convert to Class A
shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/22/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 34 funds for six months, 33 funds for
one year, 11 funds for five years, 2 funds for 10 years, and 2 funds since
inception of Class B shares on 9/22/84.
Less Means More...
For You!
Prudential mutual fund shareholders will be seeing
total returns increase in the months to come,
thanks to a reduction in Fund management expenses.
Prudential Mutual Funds lowered the rate on January
1, 1995, to 0.45% from 0.50%. It is our way of
showing you that we appreciate your business and
that we remain committedto managing the Fund for
your benefit.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from state and federal income
taxes consistent with preservation of capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. The
Series will invest primarily in Michigan state, municipal and local
government obligations and obligations of U.S. territories (such as
Puerto Rico, the U.S. Virgin Islands and Guam), the income from which
is also exempt from federal and Michigan state income taxes.
On the Hill...
In 1995, Congress will most likely consider
an initiative that would restore full income
tax deductibility for individual retirement account
(IRA) contributions for middle-income wage earners.
In addition, Congress may also consider the creation
of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual
Funds supports both of these proposals, and we urge
you to share your opinion with your Congressional
representatives. We will keep you updated on
these initiatives as they make their way through
the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you,
the tax-exempt bond market was in turmoil because interest rates were
rising sharply, and prices (which move in the opposite direction of
interest rates) were falling sharply.
Volatility escalated last year when the Federal Reserve started to
increase short-term interest rates in a pre-emptive strike against
inflation. By November, after the Federal Reserve's sixth increase
in the federal funds rate (the interbank overnight lending rate),
investors began to believe that the economy was showing signs of
slowing. As a result, long-term interest rates in the tax-exempt
bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even
though the Federal Reserve raised short-term rates again on February
1, 1995. In fact, on March 2, the Bond Buyer's Revenue Bond Index
sank to 6.3% -- its lowest since last June. That's more than a full
percentage point below its 1994 high -- 7.4% recorded on November
17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and
those with lower coupons, sometimes called premium and discount bonds.
The higher yielding premium bonds help cushion the impact of rising
interest rates while the lower coupon or discount bonds offer price
appreciation potential when interest rates decline.
The Series' average maturity was relatively short during much of 1994
as interest rates rose. Late in the year, the Series started to extend
its average maturity, which reached 17 years on February 28, up from 14
years six months earlier, helping the Series to benefit as interest
rates fell.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many issuers
-2-
<PAGE>
reluctant to borrow money. In fact, the Revenue Bond Index rose dramatically
to 6.9% from 5.5% -- nearly one and a half percentage points. As a result,
the level of new bonds issued nationwide fell by 44% and in Michigan by 49%.
A Tax Reminder...
As a result of the Revenue Reconciliation
Act of 1993, it is possible that this year
you may have some taxable income from your
normally tax-exempt municipal bond fund.
The law stipulates that the portion of any
gain realized on the sale or retirement of
a tax-exempt bond purchased at a market discount
to its face value may be taxed as ordinary income.
The law affects bonds purchased after April 30, 1993.
Michigan: 121,000 New Jobs in 1994.
Continued growth in the auto industry helped Michigan's economy create
121,000 new jobs in 1994, as the unemployment rate fell to 4.5% in December,
nearly a full percentage point lower than the national average of 5.4%.
At the end of 1993, Michigan's unemployment rate was 7.3%.
In 1994, Michigan changed the way it paid for public education by increasing
its sales tax to 6% from 4% and cutting the property tax burden in half.
To cushion the highly cyclical nature of sales tax revenues, which rise and
fall with economic growth, the state government transferred $850 million
into a rainy day fund last year. Continued strong economic performance
should permit that fund to increase to $1 billion this year.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In
fact, the Lehman Brothers Municipal Bond Index has increased 2.8% over
the last six months. That is a substantial relief to investors who
weathered sharply rising interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we believe the supply of
tax-exempt municipals will continue to contract, which should also provide
an additional reward to investors by supporting prices.
-3-
<PAGE>
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Michigan Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Marie Conti
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the
bond market -- in taxable or tax-exempt securities -- you might want
to consider some of the following points. We talked with Prudential
Mutual Funds chief fixed income strategist Dennis Bushe about why bonds
and bond mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm,
the annual inflation-adjusted return on bonds from 1926 to 1994 was
between 2.5% and 3.0%. Today's investors receive over 4.5% in total
inflation-adjusted, annualized total return. Of course, these
numbers are just for illustration, but they show how much higher
interest rates improve bond total returns when inflation is only 2.7%,
as measured by the Consumer Price Index. And beating inflation is one
primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
both this risk, and that may be especially important in 1995. First of all,
if the U.S. economy is beginning to slow down, as many economists believe,
then credit quality is a concern. A credit team becomes very valuable,
carefully selecting bonds in different sectors and industries for bond
portfolios. In addition, few individual investors have the resources or
clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled
issuers -- a bond fund does. Finally, the diversification of a bond
fund may help investors avoid wide price swings if one holding does
experience financial difficulties.Letter to Shareholders
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
MICHIGAN SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--96.1%
Adams Twnshp. Sch. Dist.
Rev.,
Gen. Oblig.,
A.M.B.A.C.,
Aaa $ 1,000 6.60%, 5/1/24........... $ 1,043,260
Breitung Twnshp. Sch.
Dist. Rev.,
Gen. Oblig.,
6.30%, 5/1/15,
Aaa 250 M.B.I.A............... 255,205
Canton Charter Twnshp. Bldg. Auth.,
Wayne Cnty. Golf Course,
Aaa 450 4.75%, 1/1/11, F.S.A.... 395,896
Aaa 450 4.75%, 1/1/12, F.S.A.... 391,280
Aaa 500 4.75%, 1/1/13, F.S.A.... 432,070
Aaa 500 4.75%, 1/1/14, F.S.A.... 431,510
Central Michigan Univ.
Rev.,
A 700D 7.00%, 10/1/10.......... 775,236
Chippewa Valley Sch.
Dist.,
5.00%, 5/1/21,
Aaa 2,400 F.G.I.C............... 2,048,448
Coldwater Wtr. Supply &
Wastewater Sys. Rev.,
6.125%, 7/1/15,
Aaa 445 A.M.B.A.C............. 451,306
Detroit Econ. Dev.
Corp.,
Res. Rec. Rev.,
F.S.A.,
6.875%, 5/1/09, Ser.
Aaa 1,000 A..................... 1,057,080
Detroit Sewage Disp.
Rev.,
5.70%, 7/1/23,
Aaa 2,000 F.G.I.C............... 1,877,240
Detroit St. Aid, Gen.
Oblig.,
Baa 1,500 5.625%, 5/1/97.......... 1,507,005
Dickinson Cnty., Mem.
Hosp.
Sys. Rev.,
Baa 1,000 8.00%, 11/1/14.......... 1,041,430
Ferris St. Univ. Gen.
Rev.,
5.80%, 10/1/05,
Aaa 440 A.M.B.A.C............. 451,528
Grand Rapids San. Swr. Sys. Rev.,
A1 500 7.00%, 1/1/16........... 526,230
Guam Pwr. Auth. Rev.,
Ser. A,
BBB* 1,000 6.625%, 10/1/14......... 1,006,750
Holland Sch. Dist.,
A.M.B.A.C.,
Aaa 2,400 Zero Coupon, 5/1/15..... 702,936
Huron Valley Sch. Dist.,
Gen. Oblig., F.G.I.C.,
Aaa 3,500 Zero Coupon, 5/1/10..... 1,410,360
Kent Hosp. Fac. Fin. Auth. Rev.,
Blodgette Mem. Med. Ctr.,
A $ 500 7.25%, 7/1/05, Ser. A... $ 533,030
Lincoln Sch. Dist.,
Gen. Oblig., F.G.I.C.,
Aaa 500 5.80%, 5/1/14........... 489,205
Michigan Higher Ed.,
Student
Loan Auth. Rev.,
M.B.I.A.,
7.55%, 10/1/08, Ser.
Aaa 500 XIII-A................ 545,745
Michigan Mun. Bond Auth. Rev.,
Local Gov't. Loan Prog.,
AAA* 500D 7.80%, 5/1/13........... 556,005
Michigan Pub. Pwr. Agcy.
Rev.,
Belle River Proj.,
A1 1,250 5.25%, 1/1/18, Ser. A... 1,108,625
Michigan St. Comp. Trans. Rev.,
5.875%, 5/15/05, Ser.
A1 1,250 B..................... 1,287,962
Michigan St. Hosp. Fin. Auth. Rev.,
Bay Med. Ctr.,
Baa1 2,000 8.25%, 7/1/12, Ser. A... 2,116,640
Henry Ford Hosp.,
Aaa 2,340 9.00%, 5/1/08........... 2,948,119
Hosp. Genesys Hlth.
Sys.,
Baa 1,000 8.125%, 10/1/21......... 1,023,220
Baa 500 7.50%, 10/1/27.......... 486,320
McLaren Obligated Group,
7.50%, 9/15/21, Ser.
Aaa 800D A..................... 912,432
Oakwood Hosp. Obligated Group,
6.95%, 7/1/02,
Aaa 1,000D@ F.G.I.C............... 1,101,230
Sisters of Mercy,
M.B.I.A.,
7.50%, 8/15/07, Ser.
Aaa 2,000 H..................... 2,147,760
Michigan St. Hsg. Dev. Auth. Rev.,
Multifamily Mtge. Insured Hsg.,
A+* 1,000 7.15%, 4/1/10, Ser. A... 1,046,490
F.G.I.C., Ser. A,
Aaa 1,000@ 8.875%, 7/1/17........ 1,038,130
A+* 500 7.70%, 4/1/23, Ser. A... 533,040
Sngl. Fam. Mtge.,
7.70%, 12/1/16, Ser.
AA+* 445 A..................... 470,952
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Michigan St. Strategic Fund Ltd.
Obligated Rev.,
Waste Mgmt. Inc. Proj.,
A1 $ 2,000 6.625%, 12/1/12......... $ 2,023,340
Michigan St. Trunk Line
Hwy.,
Ser. A, A.M.B.A.C.,
Aaa 2,600 Zero Coupon, 10/1/05.... 1,444,014
Aaa 1,250 Zero Coupon, 10/1/06.... 650,112
Monroe Cnty. Poll. Ctrl.
Rev.,
Detroit Edison Co.,
10.50%, 12/1/16, Ser.
Baa1 1,500 A..................... 1,595,895
7.65%, 9/1/20,
Aaa 2,000 F.G.I.C............... 2,166,040
Mt. Pleasant Wtr. Rev.,
Wtr. & Swr., M.B.I.A.,
Aaa 485 6.00%, 2/1/21........... 483,070
Aaa 520 5.00%, 2/1/22........... 447,236
Aaa 550 4.00%, 2/1/23........... 394,262
Aaa 585 4.00%, 2/1/24........... 417,146
Oak Park, Gen. Oblig.,
7.00%, 5/1/11,
Aaa 375D A.M.B.A.C............. 418,369
7.00%, 5/1/12,
Aaa 400D A.M.B.A.C............. 446,260
Oakland Cnty., City of
Lathrup,
Evergreen Farmington
Swr. Rev.,
A 600 6.00%, 11/1/08.......... 609,384
A 700 6.00%, 11/1/09.......... 706,951
Oakland Cnty., Leuders
Drainage Dept.,
5.50%, 5/1/09,
Aaa 350 A.M.B.A.C............. 339,910
Ottawa Cnty., Gen.
Oblig.,
Wtr. Supply Sys.,
NR 1,045D 7.60%, 8/1/07........... 1,106,916
Posen Cons. Sch. Dist.,
Sch. Dist. No. 9,
6.75%, 5/1/22,
Aaa 1,000 M.B.I.A............... 1,059,040
Puerto Rico Commonwlth.
Ref. Linked Bonds,
5.782%, 7/1/08,
Aaa 2,000 M.B.I.A............... 2,028,860
Puerto Rico Commonwlth.
Hwy. Auth. Rev.,
Baa1 1,000 6.75%, 7/1/05, Ser. R... 1,045,700
AAA* 1,500D@ 7.75%, 7/1/16, Ser. Q... 1,714,245
Puerto Rico Elec. Pwr. Auth. Rev.,
7.125%, 7/1/14, Ser.
Baa1 920D N..................... 971,419
Puerto Rico Pub. Bldgs.
Auth.,
Gtd. Pub. Ed. & Hlth.
Facs.,
Aaa $ 625D 8.00%, 7/1/12, Ser. F... $ 669,237
Pub. Ed. & Hlth. Facs.,
7.875%, 7/1/16, Ser.
Aaa 990D H..................... 1,077,744
Saginaw Valley St. Univ.
Gen. Rev.,
5.375%, 7/1/16,
Aaa 790 M.B.I.A............... 732,733
Tri-Cnty. Area Schs.,
Gen. Oblig.,
5.25%, 5/1/20,
Aaa 2,000 F.G.I.C............... 1,791,960
Univ. of Michigan Major
Cap. Proj. Rev.,
Aa1 355 5.50%, 4/1/13........... 334,797
Univ. of Michigan Rev.,
5.50%, 8/15/22, Ser.
A1 640 A..................... 583,578
Pkg. Sys. Rfdg.,
Aa1 500 5.00%, 6/1/15........... 437,525
Virgin Islands Pub. Fin. Auth. Rev.,
Matching Loan Notes,
7.25%, 10/1/18, Ser.
NR 500 A..................... 516,330
Virgin Islands Wtr. & Pwr. Auth.,
Elec. Sys. Rev.,
NR 500 7.40%, 7/1/11, Ser. A... 521,050
Warren Cons. Sch. Dist.,
Consolidate Sch.
Dist., Ser. II,
5.25%, 5/1/21,
Aaa 1,000 F.G.I.C............... 894,250
Wayne Cnty. Arpt. Rev.,
6.125%, 12/1/24,
Aaa 500 M.B.I.A............... 494,205
Wayne Cnty. Bldg. Auth.,
Baa 1,250D 8.00%, 3/1/17, Ser. A... 1,452,350
Western Michigan Univ. Gen. Rev.,
5.00%, 7/15/21,
Aaa 500 F.G.I.C............... 426,825
Wixom, Gen. Oblig.,
6.00%, 4/1/08,
Aaa 475 A.M.B.A.C............. 490,808
6.00%, 4/1/09,
Aaa 500 A.M.B.A.C............. 513,385
Wyandotte Elec. Rev.,
6.25%, 10/1/08,
Aaa 2,000 M.B.I.A............... 2,108,760
-----------
Total long-term
investments
(cost $64,377,552).... 67,263,381
-----------
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--2.6%
Michigan Strategic Fund
Poll.
Ctrl. Rev., Consumers
Pwr. Proj., F.R.D.D.,
P-1 $ 1,800 4.00%, 3/1/95, Ser. A,
(cost $1,800,000)..... $ 1,800,000
-----------
Total Investments--98.7%
(cost $66,177,552; Note
4).................... 69,063,381
Other assets in excess
of
liabilities--1.3%..... 882,049
-----------
Net Assets--100%........ $69,945,430
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note#.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par of the
next date on which the rate of interest is
adjusted.
* Standard & Poor's rating.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
@ Pledged as initial margin on financial futures
contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of Moody's and Standard & Poor's ratings.
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$66,177,552)............................................... $69,063,381
Cash.........................................................................
.......... 15,945
Interest
receivable....................................................................
1,088,062
Receivable for investments
sold........................................................ 689,224
Receivable for Fund shares
sold........................................................ 112,401
Due from broker - variation
margin..................................................... 9,375
Other
assets.......................................................................
.... 1,280
-----------------
Total
assets.........................................................................
70,979,668
-----------------
Liabilities
Payable for investments
purchased...................................................... 902,386
Payable for Fund shares
reacquired..................................................... 60,344
Management fee
payable.................................................................
23,636
Dividends
payable......................................................................
22,619
Distribution fee
payable...............................................................
19,645
Accrued
expenses.......................................................................
4,308
Deferred trustee
fees..................................................................
1,300
-----------------
Total
liabilities....................................................................
1,034,238
-----------------
Net
Assets.......................................................................
...... $69,945,430
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 59,536
Paid-in capital in excess of
par..................................................... 66,983,354
-----------------
67,042,890
Distributions in excess of net realized
gains........................................ (12,977)
Net unrealized appreciation on
investments........................................... 2,915,517
-----------------
Net assets, February 28,
1995........................................................ $69,945,430
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($26,632,579 / 2,265,899 shares of beneficial interest issued and
outstanding)..... $11.75
Maximum sales charge (3.0% of offering
price)........................................ .36
-----------------
Maximum offering price to
public..................................................... $12.11
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($43,216,299 / 3,679,463 shares of beneficial interest issued and
outstanding)..... $11.75
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($96,552 / 8,220 shares of beneficial interest issued and
outstanding)............. $11.75
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February
28,
Net Investment Income 1995
----------
<S> <C>
Income
Interest............................. $2,262,030
----------
Expenses
Management fee, net waiver of
$5,467............................... 166,145
Distribution fee--Class A............ 3,518
Distribution fee--Class B............ 153,962
Distribution fee--Class C............ 87
Custodian's fees and expenses........ 43,500
Transfer agent's fees and expenses... 33,500
Registration fees.................... 15,000
Reports to shareholders.............. 10,000
Legal fees........................... 5,000
Audit fee............................ 5,300
Trustees' fees....................... 1,600
Miscellaneous........................ 1,856
----------
Total expenses..................... 439,468
----------
Net investment income.................. 1,822,562
----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.............. 327,041
Financial futures contract
transactions......................... (93,818)
----------
233,223
----------
Net change in unrealized appreciation/
depreciation of:
Investments.......................... (373,435)
Financial futures contracts.......... 85,313
----------
(288,122)
----------
Net loss on investments................ (54,899)
----------
Net Increase in Net Assets
Resulting from Operations.............. $1,767,663
----------
----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ -----------
<S> <C> <C>
Operations
Net investment income.... $ 1,822,562 $ 3,752,311
Net realized gain on
investment
transactions........... 233,223 455,336
Net change in unrealized
appreciation/depreciation
of investments......... (288,122) (4,917,813)
------------ -----------
Net increase (decrease)
in net assets resulting
from operations........ 1,767,663 (710,166)
------------ -----------
Dividends and distributions (Note 1):
Dividends from net
investment income
Class A................ (206,993) (237,966)
Class B................ (1,614,952) (3,514,345)
Class C................ (617) --
------------ -----------
(1,822,562) (3,752,311)
------------ -----------
Distributions from net realized gains
Class A................ (12,146) (25,697)
Class B................ (177,027) (429,245)
Class C................ (42) --
------------ -----------
(189,215) (454,942)
------------ -----------
Fund share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed............. 2,919,231 13,225,456
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 1,285,927 2,730,066
Cost of shares
reacquired............... (8,834,271) (10,334,965)
------------ -----------
Net increase (decrease)
in net assets from Fund
share transactions..... (4,629,113) 5,620,557
------------ -----------
Total increase
(decrease)............... (4,873,227) 703,138
Net Assets
Beginning of period........ 74,818,657 74,115,519
------------ -----------
End of period.............. $ 69,945,430 $74,818,657
------------ -----------
------------ -----------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Michigan Series (the ``Series'') commenced
investment operations in September, 1984. The Series is diversified and seeks
to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities whose ratings are
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic or political developments in a specific
state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge it's
existing portfolio securities, or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason and because substantially all of the Series' gross income
consists of tax-exempt interest, no federal income tax provision is required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
-11-
<PAGE>
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$5,467 ($0.001 per share for Class A, B and C shares; .02% of average net
assets). The Series' is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $52,200 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $90,300 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions with vices, Inc. (``PMFS''), a
Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $19,500 for the services of PMFS. As of February 28, 1995,
approximately $3,300 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $12,652,040 and $18,767,083, respectively.
At February 28, 1995, the Fund sold 25 financial futures contracts on the
Municipal Bond Index which expire in March, 1995. The value at disposition of
such contracts is $2,599,219. The value of such contracts on February 28, 1995
was $2,569,531, thereby resulting in an unrealized gain of $29,688.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation for federal income tax
purposes was $2,885,829 (gross unrealized appreciation--$3,489,967; gross
unrealized depreciation--$604,138).
Note 5. Capital The Series offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3.0%. Class B shares are sold with
a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase.
-12-
<PAGE>
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share. Transactions in shares of beneficial
interest for the six months ended February 28, 1995 and the fiscal year ended
August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ----------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 21,887 $ 248,432
Shares issued in reinvestment
of
dividends and
distributions............... 11,728 134,455
Shares reacquired............. (60,415) (683,593)
----------- ------------
Net decrease in shares
outstanding before
conversion.................. (26,800) (300,706)
Shares issued upon conversion
from Class B................ 1,892,277 21,893,641
----------- ------------
Net increase in shares
outstanding................. 1,865,477 $ 21,592,935
----------- ------------
----------- ------------
Year ended August 31, 1994:
Shares sold................... 125,287 $ 1,540,765
Shares issued in reinvestment
of
dividends and
distributions............... 14,526 176,113
Shares reacquired............. (44,147) (531,472)
----------- ------------
Net increase in shares
outstanding................. 95,666 $ 1,185,406
----------- ------------
----------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------- ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold.................... 225,943 $ 2,577,798
Shares issued in reinvestment
of
dividends and
distributions................ 101,698 1,150,844
Shares reacquired.............. (721,952) (8,150,678)
---------- ------------
Net decrease in shares
outstanding before
conversion................... (394,311) (4,422,036)
Shares reacquired upon
conversion
into Class A................. (1,893,914) (21,893,641)
---------- ------------
Net decrease in shares
outstanding.................. (2,288,225) $(26,315,677)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold.................... 953,569 $ 11,684,491
Shares issued in reinvestment
of
dividends and
distributions................ 210,536 2,553,953
Shares reacquired.............. (816,504) (9,803,493)
---------- ------------
Net increase in shares
outstanding.................. 347,601 $ 4,434,951
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold.................... 8,148 $ 93,001
Shares issued in reinvestment
of
dividends and
distributions................ 55 628
---------- ------------
Net increase in shares
outstanding.................. 8,203 $ 93,629
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold.................... 17 $ 200
---------- ------------
Net increase in shares
outstanding.................. 17 $ 200
---------- ------------
---------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year
Ended August 31, through
February 28,
- --------------------------------------- August 31,
1995 1994
1993 1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------
- ------ ------ ------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.75 $12.51
$11.90 $11.30 $10.81 $ 11.02
------------ ------
- ------ ------ ------ -----------
Income from investment operations
Net investment income........................ .32@ .64
.67 .68 .67 .41
Net realized and unrealized gain (loss) on
investment transactions.................... .03 (.69)
.71 .60 .49 (.21)
------------ ------
- ------ ------ ------ -----------
Total from investment operations........... .35 (.05)
1.38 1.28 1.16 .20
------------ ------
- ------ ------ ------ -----------
Less distributions
Dividends from net investment income......... (.32) (.64)
(.67) (.68) (.67) (.41)
Distributions from net realized gains........ (.03) (.07)
(.10) -- -- --
------------ ------
- ------ ------ ------ -----------
Total distributions........................ (.35) (.71)
(.77) (.68) (.67) (.41)
------------ ------
- ------ ------ ------ -----------
Net asset value, end of period............... $ 11.75 $11.75
$12.51 $11.90 $11.30 $ 10.81
------------ ------
- ------ ------ ------ -----------
------------ ------
- ------ ------ ------ -----------
TOTAL RETURN#:............................... 3.20% (0.38)%
11.95% 11.63% 11.04% 1.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $26,633 $4,706
$3,814 $1,618 $835 $501
Average net assets (000)..................... $7,095 $4,505
$2,285 $1,235 $694 $365
Ratios to average net assets:
Expenses, including distribution fees...... 92%*@ .91%
.96% .98% 1.09% 1.09%*
Expenses, excluding distribution fees...... .82%*@ .81%
.86% .88% .99% .99%*
Net investment income...................... 5.88%*@ 5.27%
5.51% 5.82% 6.09% 6.25%*
Portfolio turnover rate...................... 19% 12%
14% 30% 62% 55%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
@ Net of management fee waiver.
See Notes to Financial Statements.
-14-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- -------------------------------------------------------
1995 1994
1993 1992 1991 1990
<S> <C> <C>
<C> <C> <C> <C>
------------ -------
- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.75 $ 12.51
$ 11.90 $ 11.30 $ 10.81 $ 11.03
------------ -------
- ------- ------- ------- -------
Income from investment operations
Net investment income........................ .30@ .59
.62 .63 .63 .65
Net realized and unrealized gain (loss) on
investment transactions.................... .03 (.69)
.71 .60 .49 (.22)
------------ -------
- ------- ------- ------- -------
Total from investment operations........... .33 (.10)
1.33 1.23 1.12 .43
------------ -------
- ------- ------- ------- -------
Less distributions
Dividends from net investment income......... (.30) (.59)
(.62) (.63) (.63) (.65)
Distributions from net realized gains........ (.03) (.07)
(.10) -- -- --
------------ -------
- ------- ------- ------- -------
Total distributions........................ (.33) (.66)
(.72) (.63) (.63) (.65)
------------ -------
- ------- ------- ------- -------
Net asset value, end of period............... $ 11.75 $ 11.75
$ 12.51 $ 11.90 $ 11.30 $ 10.81
<CAPTION>
------------ -------
- ------- ------- ------- -------
------------ -------
- ------- ------- ------- -------
TOTAL RETURN#:............................... 2.98% (0.78)%
11.51% 11.18% 10.60% 4.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $43,216 $70,112
$70,302 $56,095 $59,400 $49,923
Average net assets (000)..................... $62,095 $72,095
$61,548 $52,137 $50,809 $48,694
Ratios to average net assets:
Expenses, including distribution fees...... 1.32%*@ 1.31%
1.36% 1.38% 1.49% 1.44%
Expenses, excluding distribution fees...... .82%*@ .81%
.86% .88% .99% .97%
Net investment income...................... 5.24%*@ 4.87%
5.11% 5.42% 5.66% 5.95%
Portfolio turnover rate...................... 19% 12%
14% 30% 62% 55%
<CAPTION>
Class C
August 1,
Six Months 1994D
Ended through
February 28, August 31,
1995 1994
<S> <C> <C>
------------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period......... $ 11.75 $ 11.78
------------ ----------
Income from investment operations
Net investment income........................ .28@ .04
Net realized and unrealized gain (loss) on
investment transactions.................... .03 (.03)
------------ ----------
Total from investment operations........... .31 .01
------------ ----------
Less distributions
Dividends from net investment income......... (.28) (.04)
Distributions from net realized gains........ (.03) --
------------ ----------
Total distributions........................ (.31) (.04)
------------ ----------
Net asset value, end of period............... $ 11.75 $ 11.75
------------ ----------
------------ ----------
TOTAL RETURN#:............................... 2.80% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............. $97 $200@@
Average net assets (000)..................... $24 $199@@
Ratios to average net assets:
Expenses, including distribution fees...... 1.58%*@ 2.15%*
Expenses, excluding distribution fees...... .83%*@ 1.39%*
Net investment income...................... 5.33%*@ 4.56%*
Portfolio turnover rate...................... 19% 12%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
@ Net of management fee waiver.
@@ Figures are actual and not rounded to the nearest thousand.
See Notes to Financial Statements.
-15-
<PAGE>
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995,
were not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
74435M671 MF120E2
74435M689 (LOGO) Cat. #642742Y
74435M556
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ------------------------
(PICTURE)
Minnesota Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued tax-exempt bonds became scarce. We are pleased to report
that your Prudential Municipal Series Fund -- Minnesota Series has produced
a positive total return. The Series did finish behind the average Minnesota
municipal bond fund as measured by Lipper Analytical Services, Inc., because
it held securities with maturities that were shorter than the average.
(GRAPH)
Less Means More...
For You!
Prudential mutual fund shareholders will
be seeing total returns increase in the
months to come, thanks to a reduction
in Fund management expenses. Prudential
Mutual Funds lowered the rate on January
1, 1995, to 0.45% from 0.50%. It is our
way of showing you that we appreciate your
business and that we remain committed
to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 2.2% 0.6% 36.8% N/A 37.7%
Class B 2.0% 0.2% 34.1% 108.5% 118.9%
Class C 1.8% N/A N/A N/A 1.7%
Lipper MN
Muni. Avg3 2.46% 1.07% 41.40% 124.65% 140.06%
</TABLE.
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 2.1% 6.0% N/A 5.9%
Class B -0.2% 6.0% 7.7% 7.8%
Class C N/A N/A N/A 1.3%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3% for
Class A shares. Class B shares are subject to a contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a
1% CDSC for one year. Class B shares will automatically convert to Class
A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 10/4/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 32 funds for six months, 29 funds for one
year, 16 funds for five years, 3 funds for 10 years, and 3 funds since
inception of Class B shares on 10/4/84.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Minnesota state and federal
income taxes consistent with preservation of principal. Certain taxpayers
may be subject to the federal alternative minimum tax, however. The Series
will invest primarily in Minnesota state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico,
the U.S. Virgin Islands and Guam), the income from which is also exempt
from federal and Minnesota state income taxes.
(GRAPH)
On the Hill...
In 1995, Congress will most likely consider
an initiative that would restore full income tax
deductibility for individual retirement account
(IRA) contributions for middle-income wage
earners. In addition, Congress may also
consider the creation of a new tax-deferred
savings account called the "American Dream
Savings Account." Prudential Mutual Funds
supports both of these proposals, and we
urge you to share your opinion with your
Congressional representatives. We will keep
you updated on these initiatives as they make
their way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you,
the tax-exempt bond market was in turmoil because interest rates were
rising sharply, and prices (which move in the opposite direction of
interest rates) were falling sharply.
Volatility escalated last year when the Federal Reserve started to
increase short-term interest rates in a pre-emptive strike against
inflation. By November, after the Federal Reserve's sixth increase
in the federal funds rate (the interbank overnight lending rate),
investors began to believe that the economy was showing signs of
slowing. As a result, long-term interest rates in the tax-exempt bond
market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995.
In fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below its
1994 high -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and
those with lower coupons, sometimes called premium and discount bonds.
The higher yielding premium bonds help cushion the impact of rising interest
rates while the lower coupon or discount bonds offer price appreciation
potential when interest rates decline.The Series took advantage of last year's
lower bond prices by increasing its holdings in pre-refunded bonds to nearly
23% of assets, up from 17% six months ago. In addition, to increase its
yield, the Series has purchased undervalued utility bonds, raising their
share of assets to 17% from 13%, while selling health care and education
bonds.
-2-
<PAGE>
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many
issuers reluctant to borrow money. In fact, the Revenue Bond Index rose
dramatically to 6.9% from 5.5% -- nearly one and a half percentage points.
As a result, the level of new bonds issued nationwide fell by 44% and in
Minnesota by 52%.
A Tax Reminder...
As a result of the Revenue Reconciliation Act of
1993, it is possible that this year you may have
some taxable income from your normally tax-exempt
municipal bond fund. The law stipulates that
the portion of any gain realized on the sale or
retirement of a tax-exempt bond purchased at a
market discount to its face value may be taxed
as ordinary income. The law affects bonds
purchased after April 30, 1993.
Minnesota: Stable Economic Growth.
Over the past decade, Minnesota's economy has performed better than that
of the Great Plains Region as well as the nation in terms of income and
employment. The state's economy is well diversified among manufacturing,
services, agriculture and housing. Its unemployment rate was 3.1% in
November, two full percentage points lower than the national average
of 5.3%.
The state generally operates with a long-term fiscal planning horizon, so
it avoids structural deficits. The budget is balanced and includes a cash
reserve of $500 million. No tax increases were approved in 1994. The state's
fiscally conservative governor has pledged to avoid new taxes in the future.
Minnesota enjoys an excellent credit rating.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last
six months. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.
We believe long-term interest rates will stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we expect the supply of
tax-exempt municipals to continue to contract, which should also provide
an additional reward to investors by supporting prices.
-3-
<PAGE>
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Minnesota Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Fund Update
Starting in February 1995, Class B shareholders
may have begun to notice a change in their Fund
holdings. That's when Class B shares began to
automatically convert to Class A shares, on a
quarterly basis, approximately seven years after
purchase. As you may know, Class A shares
generally carry lower annual distribution expenses
than Class B shares. Accordingly, after
conversion you will earn higher total returns
on your investment than you would have as a Class B
shareholder.
Following the May cycle, conversions of eligible
Class B shares and special exchanges of Class B
and C shares will take place each calendar quarter
(March, June, September and December) starting in
September 1995.
Sincerely,
Lawrence C. McQuade
President
Carla Wrocklage
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the
bond market -- in taxable or tax-exempt securities -- you might want to
consider some of the following points. We talked with Prudential Mutual
Funds chief fixed income strategist Dennis Bushe about why bonds and bond
mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns
when inflation is only 2.7%, as measured by the Consumer Price Index. And
beating inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
both this risk, and that may be especially important in 1995. First of all,
if the U.S. economy is beginning to slow down, as many economists believe,
then credit quality is a concern. A credit team becomes very valuable,
carefully selecting bonds in different sectors and industries for bond
portfolios. In addition, few individual investors have the resources or
clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled issuers -- a
bond fund does. Finally, the diversification of a bond fund may help investors
avoid wide price swings if one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
MINNESOTA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--97.9%
Anoka Hennepin Indpt.
Sch. Dist., No. 11,
Ser. C,
Zero Coupon, 2/1/12,
Aaa $ 1,575 C.G.I.C.............. $ 575,285
Breckenridge Hosp.
Facs. Rev.,
Franciscan Sisters
Healthcare,
A-* 800D 9.375%, 9/1/17, Ser.
B1................... 900,536
Dakota Cnty. Hsg. &
Redev. Auth.,
Burnsville & Inner
Grove, Sngl. Fam.
Mtge.,
Aaa 10 9.375%, 5/1/18,
F.G.I.C.............. 10,739
Metropolitan Council of Minneapolis,
Hubert H. Humphrey Metrodome,
A 500 6.00%, 10/1/09......... 505,410
St. Paul Met. Area,
Aaa 750 6.25%, 12/1/06, Ser.
A.................... 785,190
Aaa 500 6.75%, 9/1/10, Ser.
D.................... 527,405
Minneapolis Cmnty. Dev.
Agcy.,
St. Paul Hsg. &
Redev. Auth. Rev.,
Aa 10 9.875%, 12/1/15........ 10,399
Tax Increment Rev.,
M.B.I.A.,
Aaa 750 Zero Coupon, 9/1/01.... 531,892
Aaa 1,000 Zero Coupon, 3/1/06.... 542,110
Aaa 1,000 Zero Coupon, 9/1/07.... 493,290
Minneapolis Hosp. Rev.,
Lifespan Inc., Ser.
B,
A1 820D 8.70%, 12/1/02......... 915,989
A 800 8.125%, 8/1/17......... 882,456
Minneapolis-St. Paul
Hsg. Fin.
Brd. Rev., Sngl. Fam.
Mtge.,
AAA* 920 7.30%, 8/1/31,
G.N.M.A.............. 958,631
Minneapolis-St. Paul
Met. Arpts.,
Aaa 1,000 7.80%, 1/1/14, Ser.
7.................... 1,096,990
Minnesota Pub. Facs.
Auth.,
Wtr. Poll. Ctrl.
Rev.,
Aa+* 500 6.90%, 3/1/03, Ser.
A.................... 546,865
Aa+* 650 7.00%, 3/1/09.......... 698,750
Minnesota St., Gen.
Oblig.,
Aa1 $ 500 6.00%, 10/1/13......... $ 504,315
Minnesota St. Higher
Ed. Facs. Auth. Rev.,
Macalester Coll.,
Aa 500 6.40%, 3/1/22.......... 506,740
St. Mary's Coll.,
Baa 625 6.10%, 10/1/16......... 594,075
Univ. of St. Thomas,
A1 300 5.60%, 9/1/14.......... 282,042
Northern Mun. Pwr.
Agcy.,
Elec. Sys. Rev.,
A 370 7.25%, 1/1/16, Ser.
A.................... 389,817
5.50%, 1/1/18, Ser. B,
Aaa 750 A.M.B.A.C............ 716,175
Northfield Coll. Fac.
Rev.,
St. Olaf Coll.,
A 370 6.30%, 10/1/12......... 379,061
Ramsey Cnty., Gen.
Oblig.,
Aaa 500 7.25%, 2/1/04.......... 530,960
Robbinsdale Hosp. Rev.,
North Memorial Med.
Ctr.,
5.55%, 5/15/19,
Aaa 1,000 A.M.B.A.C............ 935,550
Rochester Hlth. Care
Facs.
Rev., Mayo Med. Ctr.,
NR 500D 8.30%, 11/15/07, Ser.
A.................... 559,445
Science Museum,
St. Paul, Cert. of
Part.,
AAA* 1,215D 7.50%, 12/15/01........ 1,317,227
Southern Mun. Pwr.
Agcy. Pwr. Supply
Sys. Rev.,
Aaa 195D 5.50%, 1/1/15.......... 183,977
5.50%, 1/1/15, Ser. B,
Aaa 305 A.M.B.A.C............ 293,571
Zero Coupon, 1/1/20,
Aaa 3,250 Ser. A, M.B.I.A...... 719,973
St. Louis Park Hosp.
Rev.,
Methodist Hosp., Ser.
C,
7.25%, 7/1/18,
Aaa 800D/@ A.M.B.A.C............ 890,488
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
St. Paul Hsg. & Redev.
Auth.,
Ramsey Med. Ctr.
Proj.,
5.55%, 5/15/23,
Aaa $ 500 A.M.B.A.C............ $ 461,565
Tax Increment Rev.,
Aaa 1,000 5.25%, 9/1/05,
A.M.B.A.C............ 983,350
St. Paul Port Auth.,
Energy Park Tax
Increment Rev.,
Baa 820D 8.00%, 12/1/07......... 918,105
Univ. of Minnesota
Rev.,
A1 1,000 6.00%, 2/1/11, Ser.
A.................... 1,018,470
Western Mun. Pwr.
Agcy.,
Supply Rev.,
A1 500 5.50%, 1/1/15, Ser.
A.................... 468,430
-----------
Total long-term
investments
(cost $21,138,576)..... 22,635,273
-----------
SHORT-TERM INVESTMENTS--0.9%
Beltrami Cnty. Environ.
Ctl. Rev.,
Northwood Panel Brd.
Prog.,
A-1* 200 3.90%, 3/1/95, F.R.D.D.
(cost $200,000)...... 200,000
-----------
Total Investments--98.8%
(cost $21,338,576; Note
4)................... 22,835,273
Other assets in excess
of
liabilities--1.2%.... 284,221
-----------
Net Assets--100%....... $23,119,494
-----------
-----------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note#.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of such securities is considered to
be the later of the next date on which the
security can be redeemed at par or the next date
on which the rate of interest is adjusted.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
@ Pledged as initial margin on financial futures
contracts.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$21,338,576)............................................... $22,835,273
Interest
receivable....................................................................
360,850
Other
assets.......................................................................
.... 619
-----------------
Total
assets.........................................................................
23,196,742
-----------------
Liabilities
Payable for Series shares
reacquired................................................... 25,310
Accrued
expenses.......................................................................
14,008
Bank
overdraft....................................................................
..... 13,943
Management fee
payable.................................................................
7,935
Dividends
payable......................................................................
6,385
Distribution fee
payable...............................................................
6,331
Due to broker - variation
margin....................................................... 2,036
Deferred trustee's
fees................................................................
1,300
-----------------
Total
liabilities....................................................................
77,248
-----------------
Net
Assets.......................................................................
...... $23,119,494
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 20,101
Paid-in capital in excess of
par..................................................... 22,182,127
-----------------
22,202,228
Accumulated net realized loss on
investments......................................... (550,525)
Net unrealized appreciation on
investments........................................... 1,467,791
-----------------
Net assets, February 28,
1995........................................................ $23,119,494
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($10,103,796 / 878,428 shares of beneficial interest issued and
outstanding)....... $11.50
Maximum sales charge (3.0% of offering
price)........................................ .36
-----------------
Maximum offering price to
public..................................................... $11.86
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($13,015,396 / 1,131,681 shares of beneficial interest issued and
outstanding)..... $11.50
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($301.65 / 26.23 shares of beneficial interest issued and
outstanding)............. $11.50
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest.............................. $ 772,349
------------
Expenses
Management fee, net of waiver of
$1,846................................ 56,800
Distribution fee--Class A............. 1,074
Distribution fee--Class B............. 53,307
Custodian's fees and expenses......... 34,000
Transfer agent's fees and expenses.... 15,900
Registration fees..................... 14,800
Reports to shareholders............... 13,900
Audit fee............................. 5,300
Legal fees............................ 5,000
Trustees' fees........................ 1,600
Miscellaneous......................... 408
------------
Total expenses...................... 202,089
------------
Net investment income................... 570,260
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions............... (479,810)
Financial futures transactions........ (39,813)
------------
(519,623)
------------
Net change in unrealized appreciation
on:
Investments........................... 407,828
Financial futures contracts........... (8,219)
------------
399,609
------------
Net loss on investments................. (120,014)
------------
Net Increase in Net Assets
Resulting from Operations............... $ 450,246
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income.... $ 570,260 $ 1,216,366
Net realized gain (loss)
on investment
transactions........... (519,623) 193,802
Net change in unrealized
appreciation on
investments............ 399,609 (1,803,545)
------------ ------------
Net increase (decrease)
in net
assets resulting from
operations............. 450,246 (393,377)
------------ ------------
Dividends and distributions (Note 1)
Dividends from net
investment income
Class A................ (58,660) (57,132)
Class B................ (511,595) (1,159,234)
Class C................ (5) --
------------ ------------
(570,260) (1,216,366)
------------ ------------
Distributions from net
realized gains
Class A................ (3,744) (6,669)
Class B................ (82,924) (189,576)
Class C................ (1) --
------------ ------------
(86,669) (196,245)
------------ ------------
Series share transactions
(net of conversion) (Note
5)
Net proceeds from shares
subscribed............. 419,862 3,930,513
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 436,738 949,351
Cost of shares
reacquired............... (3,306,413) (4,757,735)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions........... (2,449,813) 122,129
------------ ------------
Total decrease............. (2,656,496) (1,683,859)
Net Assets
Beginning of period........ 25,775,990 27,459,849
------------ ------------
End of period.............. $ 23,119,494 $ 25,775,990
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Minnesota Series (the ``Series'')
commenced investment operations in October, 1984. The Series is diversified and
seeks to achieve its investment objective of obtaining the maximum amount of
income exempt from federal and applicable state income taxes with the minimum
of
risk by investing in ``investment grade'' tax-exempt securities whose ratings
are within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund and the Series in the
preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain(loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends are made monthly. Distributions of net
capital gains, if any, are made annually.
-10-
<PAGE>
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
and occupancy and certain clerical and bookkeeping costs of the Fund. The Fund
bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$1,846. The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $600 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $30,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the six months ended February 28, 1995, the Series incurred fees of
approximately $11,000 for the services of PMFS. As of February 28, 1995,
approximately $2,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995, were $1,619,204 and $4,185,464, respectively.
At February 28, 1995 the Series sold 50 financial futures contracts on the
Municipal Bond Index expiring in March, 1995. The value at disposition of such
contracts was $424,531. The value of such contracts on February 28, 1995 was
$453,437, thereby resulting in an unrealized loss of $28,906.
The cost basis of investments for federal income tax purposes at February 28,
1995 was substantially the same as the basis for financial reporting purposes
and, accordingly, net unrealized appreciation of investments for federal income
tax purposes was $1,496,697 (gross unrealized appreciation--$1,565,988; gross
unrealized depreciation--$69,291).
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Commencing
in February 1995, Class B shares automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
-11-
<PAGE>
<PAGE>
Transactions in shares of beneficial interest for the six months ended
February 28, 1995 and the fiscal year ended August 31, 1994 were as follows:
<TABLE>
<S> <C> <C>
Class A Shares Amount
------------- ------------
Six months ended February 28,
1995:
Shares sold..................... 5,856 $ 66,445
Shares issued in reinvestment of
dividends and distributions... 3,962 44,709
Shares reacquired............... (37,716) (424,517)
------------- ------------
Net decrease in shares
outstanding
before conversion............. (27,898) (313,363)
Shares issued upon conversion
from Class B.................. 794,998 9,015,275
------------- ------------
Net increase in shares
outstanding................... 767,100 $ 8,701,912
------------- ------------
------------- ------------
Year ended August 31, 1994:
Shares sold..................... 57,307 $ 690,269
Shares issued in reinvestment of
dividends and distributions... 4,480 53,440
Shares reacquired............... (23,024) (272,744)
------------- ------------
Net increase in shares
outstanding................... 38,763 $ 470,965
------------- ------------
------------- ------------
<CAPTION>
Class B Shares Amount
<S> <C> <C>
------------- ------------
Six months ended February 28,
1995:
Shares sold..................... 31,394 $ 353,317
Shares issued in reinvestment of
dividends and distributions... 35,250 392,029
Shares reacquired............... (258,707) (2,881,896)
------------- ------------
Net decrease in shares
outstanding
before conversion............. (192,063) (2,136,550)
Shares reacquired upon
conversion into Class A....... (794,998) (9,015,275)
------------- ------------
Net decrease in shares
outstanding................... (987,061) $(11,151,825)
------------- ------------
------------- ------------
Year ended August 31, 1994:
Shares sold..................... 267,959 $ 3,240,044
Shares issued in reinvestment of
dividends and distributions... 74,796 895,911
Shares reacquired............... (378,895) (4,484,991)
------------- ------------
Net decrease in shares
outstanding................... (36,140) $ (349,036)
------------- ------------
------------- ------------
<CAPTION>
Class C
<S> <C> <C>
Six months ended February 28,
1995:
Shares sold..................... 9 $ 100
------------- ------------
------------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold..................... 17 $ 200
------------- ------------
------------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-12-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class
A
- -------------------------------------------------------------------------
Six
January 22,
Months
1990D
Ended Year Ended
August 31, Through
February 28,
- --------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
------------ ------ ------
------ ------ ------------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.56 $12.33 $11.78
$11.40 $10.98 $ 11.14
------------ ------ ------
------ ------ ------------
Income from investment operations:
Net investment income.................. .29DD .58 .62
.66 .64 .39
Net realized and unrealized gain (loss)
on investment transactions........... (.02) (.68) .57
.38 .42 (.16)
------------ ------ ------
------ ------ ------------
Total from investment operations..... .27 (.10) 1.19
1.04 1.06 .23
------------ ------ ------
------ ------ ------------
Less distributions
Dividends from net investment
income............................... (.29) (.58) (.62)
(.66) (.64) (.39)
Distributions from net realized
gains................................ (.04) (.09) (.02)
-- -- --
------------ ------ ------
------ ------ ------------
Total distributions.................. (.33) (.67) (.64)
(.66) (.64) (.39)
------------ ------ ------
------ ------ ------------
Net asset value, end of period......... $ 11.50 $11.56 $12.33
$11.78 $11.40 $ 10.98
------------ ------ ------
------ ------ ------------
------------ ------ ------
------ ------ ------------
TOTAL RETURN#:......................... 2.16% (0.87)% 10.45%
9.38% 9.93% 2.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 10,104 $1,287 $894
$402 $229 $130
Average net assets (000)............... $ 2,165 $1,179 $616
$291 $202 $87
Ratios to average net assets:
Expenses, including distribution
fees............................... 1.35%*/DD 1.25% 1.29%
1.22% 1.41% 1.46%*
Expenses, excluding distribution
fees............................... 1.25%*/DD 1.15% 1.19%
1.11% 1.31% 1.33%*
Net investment income................ 5.22%*/DD 4.84% 5.15%
5.69% 5.73% 5.80%*
Portfolio turnover..................... 7% 21% 27%
32% 56% 30%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
DD Net of fee waiver.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment
of dividends and distributions. Total return for periods of less than
one full year are not annualized.
See Notes to Financial Statements.
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MINNESOTA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class
B Class C
- ------------------------------------------------------------------------
- ------------
Six
Six
Months
Months
Ended Year
Ended August 31, Ended
February 28,
- ------------------------------------------------------- February 28,
1995 1994 1993
1992 1991 1990 1995
------------ ------- -------
------- ------- ------- ------
<S> <C> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.56 $ 12.33 $ 11.78
$ 11.41 $ 10.98 $ 11.14 $11.56
------------ ------- -------
------- ------- ------- ------
Income from investment operations:
Net investment income.................. .27DD .53 .58
.61 .60 .62 .24DD
Net realized and unrealized gain (loss)
on investment transactions........... (.02) (.68) .57
.37 .43 (.16) (.02)
------------ ------- -------
------- ------- ------- ------
Total from investment operations..... .25 (.15) 1.15
.98 1.03 .46 .22
------------ ------- -------
------- ------- ------- ------
Less distributions
Dividends from net investment
income............................... (.27) (.53) (.58)
(.61) (.60) (.62) (.24)
Distributions from net realized
gains................................ (.04) (.09) (.02)
-- -- -- (.04)
------------ ------- -------
------- ------- ------- ------
Total distributions.................. (.31) (.62) (.60)
(.61) (.60) (.62) (.28)
------------ ------- -------
------- ------- ------- ------
Net asset value, end of period......... $ 11.50 $ 11.56 $ 12.33
$ 11.78 $ 11.41 $ 10.98 $11.50
------------ ------- -------
------- ------- ------- ------
------------ ------- -------
------- ------- ------- ------
TOTAL RETURN#:......................... 1.97% (1.26)% 9.99%
8.83% 9.64% 4.20% 1.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 13,015 $24,489 $26,565
$24,746 $23,600 $24,080 $302@
Average net assets (000)............... $ 21,499 $26,113 $25,387
$24,038 $23,997 $23,558 $198@
Ratios to average net assets:
Expenses, including distribution
fees............................... 1.75%*/DD 1.65% 1.69%
1.62% 1.81% 1.78% 2.00%*/DD
Expenses, excluding distribution
fees............................... 1.25%*/DD 1.15% 1.19%
1.12% 1.31% 1.28% 1.25%*/DD
Net investment income................ 4.82%*/DD 4.44% 4.75%
5.29% 5.33% 5.49% 4.57%*/DD
Portfolio turnover..................... 7% 21% 27%
32% 56% 30% 7%
<CAPTION>
August 1,
1994D
Through
August 31,
1994
----------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $11.63
----------
Income from investment operations:
Net investment income.................. .04
Net realized and unrealized gain (loss)
on investment transactions........... (.07)
----------
Total from investment operations..... (.03)
----------
Less distributions
Dividends from net investment
income............................... (.04)
Distributions from net realized
gains................................ --
----------
Total distributions.................. (.04)
----------
Net asset value, end of period......... $11.56
----------
----------
TOTAL RETURN#:......................... (.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $199@
Average net assets (000)............... $200@
Ratios to average net assets:
Expenses, including distribution
fees............................... 2.15%*
Expenses, excluding distribution
fees............................... 1.40%*
Net investment income................ 3.86%*
Portfolio turnover..................... 21%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class C shares.
DD Net of fee waiver.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total return for periods of less than one
full year are not annualized.
@ Figures are actual and not rounded to nearest thousand.
See Notes to Financial Statements.
-14-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M697
74435M713 MF121E2
74435M549 (LOGO) Cat. #642188U
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ----------------------
(ICON)
New Jersey Series
(LOGO)
<PAGE>
Letter to
Shareholders
---------------------------------
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and newly-
issued tax-exempt bonds became scarce. We are pleased to report that your
Prudential Municipal Series Fund -- New Jersey Series has earned a positive
total return, performing better than the average New Jersey municipal bond
fund as measured by Lipper Analytical Services, Inc.
Less Means More...
For You!
Prudential mutual fund shareholders will be seeing total returns increase
in the months to come, thanks to a reduction in Fund management expenses.
Prudential Mutual Funds lowered the rate on January 1, 1995, to 0.45% from
0.50%. It is our way of showing you that we appreciate your business and
that we remain committed to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 2.8% 1.0% 46.8% 47.6%
Class B 2.6% 0.6% 44.0% 70.7%
Class C 2.5% N/A N/A 1.6%
Lipper NJ
Muni. Avg3 2.0% N/A 46.3% 75.7%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years Since Inception2
<S> <C> <C> <C>
Class A 2.8% 7.5% 7.3%
Class B 0.6% 7.5% 8.0%
Class C N/A N/A 2.3%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account sales
charges. The average annual returns do take into account applicable sales
charges. The Series charges a maximum front-end sales load of 3% for Class A
shares. Class B shares are subject to a contingent deferred sales charge of
5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a 1% CDSC for
one year. Class B shares will automatically convert to Class A shares on a
quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 3/4/88, Class B; 8/1/94 Class C.
3Lipper average returns are for 43 funds for six months, 33 funds for
one year, 10 funds for five years and 5 funds since inception of Class B
shares on 3/4/88.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from New Jersey state and federal
income taxes consistent with preservation of principal. Certain shareholders
may be subject to the federal alternative minimum tax, however. The Series
will invest primarily in New Jersey state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico, the
U.S. Virgin Islands and Guam), the income from which is also exempt from
federal and New Jersey state income taxes.
On the Hill...
In 1995, Congress will most likely consider an initiative that would
restore full income tax deductibility for individual retirement account
(IRA) contributions for middle-income wage earners. In addition, Congress
may also consider the creation of a new tax-deferred savings account called
the "American Dream Savings Account." Prudential Mutual Funds supports both
of these proposals, and we urge you to share your opinion with your
Congressional representatives. We will keep you updated on these initiatives
as they make their way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds
rate (the interbank overnight lending rate), investors began to believe that
the economy was showing signs of slowing. As a result, long-term interest
rates in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In
fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below its
1994 high -- 7.4% recorded on November 17, 1994.
The Series' performance has benefited from a decision late last year to
reduce exposure to resource recovery bonds, which have suffered because
certain local governments may not be able to control the flow of waste to
their facilities. The U.S. Supreme Court has ruled that governments can not
force municipalities to send their garbage to a regional disposal site, ruling
that this is an unconstitutional restraint on interstate commerce. We now hold
6% of assets in bonds affected by this dispute, down from 8%. Analysts expect
the issue will be clarified soon by Congress voting to grandfather agreements
signed before the court ruling.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and those
with lower coupons, sometimes called premium and discount bonds. The higher
yielding premium bonds help cushion the impact of rising interest rates while
-2-
<PAGE>
the lower coupon or discount bonds offer price appreciation potential when
interest rates decline.
We took advantage of lower bond prices late last year by enhancing the
quality of the portfolio -- Triple-A rated and insured bonds now account for
58% of assets, up from 50% six months ago. We have done so because of a
trading opportunity to purchase the insurance at a favorable price in the
secondary market. Of course, this insurance adds value to these bonds. The
Series has also increased its holdings in the utilities and health care
sectors, believing they are undervalued.
A Tax Reminder...
As a result of the Revenue Reconciliation Act of 1993, it is possible that
this year you may have some taxable income from your normally tax-exempt
municipal bond fund. The law stipulates that the portion of any gain realized
on the sale or retirement of a tax-exempt bond purchased at a market discount
to its face value may be taxed as ordinary income. The law affects bonds
purchased after April 30, 1993.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently as new
supply has significantly contracted. Last year's higher interest rates made
many issuers reluctant to borrow money. In fact, the Revenue Bond Index rose
dramatically last year from to 6.9% from 5.5% -- nearly one and a half
percentage points. As a result, the level of new bonds issued fell by 44%
last year nationally. New Jersey was a rare exception -- issuance fell by only
7%. But this year New Jersey is following the trend, with supply down 64% so
far in the first two months of 1995.
New Jersey: In Recovery.
New Jersey's economy continues to recover from the recession of the 1990s.
Although progress has been slow, it has been stronger than that of New York
and Connecticut. Unemployment has declined to 6.1% in December from 7% in
December, 1993, but it still remains above the national average which was 5.4%
in December, 1994. Although New Jersey's economic base is extremely
diversified, broad structural shifts in the national economy has reduced
employment in pharmaceuticals, health care and insurance.
Nominal growth in jobs of 1.8% in 1995 and 1.5% in 1996 is predicted. This
optimism has led Governor Christine Todd Whitman to propose a fiscal 1996
budget including the final installment of a 15% income tax rate cut. The
budget is designed to take the state from a deficit of $2 billion to a surplus
of $500 million. This surplus would enable the state to maintain its credit
rating, but cutbacks at the state level should be watched to see if they lead
to higher local property taxes.
Our Garden State Strategy.
Given the state's changing fiscal situation, we have continued to stay away
from New Jersey general obligation bonds over the past six months. We will
carefully watch developments with the hope of purchasing these bonds when
conditions warrant.
-3-
<PAGE>
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last six
months. That is a substantial relief to investors who weathered sharply rising
interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we expect the supply of tax-
exempt municipals to continue to contract, which should also provide an
additional reward to investors by supporting prices.
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- New Jersey Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Fund Update
Starting in February 1995, Class B shareholders may have begun to notice a
change in their Fund holdings. That's when Class B shares began to
automatically convert to Class A shares, on a quarterly basis, approximately
seven years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly, after
conversion you will earn higher total returns on your investment than you
would have as a Class B shareholder.
Following the May cycle, conversions of eligible Class B shares and special
exchanges of Class B and C shares will take place each calendar quarter
(March, June, September and December) starting in September 1995.
Sincerely,
Lawrence C. McQuade
President
Carla Wrockladge
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
- ---------------------------------- (PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds chief
fixed income strategist Dennis Bushe about why bonds and bond mutual funds
may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
this risk, and that may be especially important in 1995. First of all, if the
U.S. economy is beginning to slow down, as many economists believe, then
credit quality is a concern. A credit team becomes very valuable, carefully
selecting bonds in different sectors and industries for bond portfolios. In
addition, few individual investors have the resources or clout to continually
monitor companies, unearth possible credit problems before they surface, and
negotiate favorable terms with troubled issuers -- a bond fund does. Finally,
the diversification of a bond fund may help investors avoid wide price swings
if one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
NEW JERSEY SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<CAPTION>
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.4%
Atlantic City Mun.
Utils. Auth.
Rev., Wtr. System,
A-* $ 2,000D 7.75%, 5/1/17.......... $ 2,266,080
Atlantic City, Gen.
Oblig.,
BAA1 1,490 Zero Coupon, 11/1/06... 768,676
Bergen Cnty., Utils.
Auth., Wtr.
Poll. Ctrl. Rev.,
F.G.I.C.,
Aaa 1,000 5.75%, 12/15/05........ 1,031,560
Aaa 7,250 Zero Coupon, 12/15/08,
Ser. B............... 3,272,070
Camden Cnty. Fin.
Auth.,
Aaa 1,600 Zero Coupon, 2/15/03,
F.S.A................ 1,030,608
Camden Cnty. Mun.
Utils.
Auth., Sewage Rev.,
Aaa 1,750 8.25%, 12/1/17,
F.G.I.C.............. 1,921,360
Camden Cnty. Poll.
Ctrl. Fin.
Auth., Solid Waste
Res.
Recovery Rev., Ser.
B,
Ba 3,400 7.50%, 12/1/09, Ser.
B.................... 3,239,486
Cape May Cnty. Ind.
Poll. Ctrl.,
Fin. Auth. Rev.,
Aaa 2,615 6.80%, 3/1/21,
M.B.I.A.............. 2,952,440
Cherry Hill Township,
Aa 1,000 5.90%, 6/1/05.......... 1,062,910
Aa 2,000 6.30%, 6/1/12.......... 2,083,720
Cinnaminson Sewage
Auth. Rev.,
A1 1,600 7.40%, 2/1/15.......... 1,781,152
Delaware River Jt. Toll
Bridge
Comn., Bridge Rev.,
A 3,050D@ 7.875%, 7/1/18......... 3,380,132
Delaware River Port
Auth. Rev.,
Pennsylvania & New
Jersey River Bridges,
7.375%, 1/1/07,
Aaa 4,470 A.M.B.A.C............ 4,889,867
Edison Twnshp., Gen.
Oblig., A.M.B.A.C.,
Aaa 5,390 6.00%, 1/1/08.......... 5,625,273
Egg Harbor Twnshp. Sch.
Dist.,
Cert. of Part.,
Aaa $ 1,000D 7.40%, 4/1/02,
M.B.I.A.............. $ 1,104,090
Essex Cnty. Impvt.
Auth.,
Aaa 1,600 5.50%, 12/1/20,
A.M.B.A.C............ 1,501,552
Evesham Mun. Utils.
Auth. Rev.,
Ser. B, M.B.I.A.,
Aaa 2,000 7.00%, 7/1/10.......... 2,122,780
Guam Pwr. Auth. Rev.,
BBB* 1,750 6.30%, 10/1/22......... 1,690,010
Hammonton, Gen. Oblig.,
A.M.B.A.C.,
Aaa 500 6.85%, 8/15/03......... 553,010
Aaa 500 6.85%, 8/15/04......... 556,290
Aaa 500 6.85%, 8/15/05......... 558,635
Howell Twnshp. Mun.
Utils.
Auth. Rev.,
NR 750D 8.60%, 1/1/14, 2nd
Ser.................. 847,260
Hudson Cnty. Impvt.
Auth. Fac.,
Lease Rev.,
Aaa 1,750 6.00%, 12/1/25,
F.G.I.C.............. 1,744,925
Hudson Cnty. Impvt.
Auth.,
Solid Waste Sys. Rev.,
A+* 1,500 6.10%, 7/1/20.......... 1,478,895
Solid Waste Sys.,
BBB-* 5,400 7.10%, 1/1/20.......... 5,071,032
Hudson Cnty. Qualified
Water
Auth. Rev.,
Aaa 1,200 5.00%, 12/15/17,
F.S.A................ 1,058,616
Jackson Twnshp. Sch.
Dist.,
F.G.I.C.,
Aaa 1,020 6.60%, 6/1/04.......... 1,114,360
Aaa 940 6.60%, 6/1/05.......... 1,030,184
Aaa 1,600 6.60%, 6/1/10.......... 1,748,704
Aaa 1,600 6.60%, 6/1/11.......... 1,745,760
Jersey City, Gen.
Oblig., F.S.A.,
Aaa 4,310 9.25%, 5/15/04, Ser.
A,................... 5,505,077
Jersey City, Redev.
Auth. Rev.,
Red Dixon Mill Apts.
Proj.,
AAA* 5,000 6.10%, 5/1/12,
F.N.M.A.............. 5,032,450
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Lakewood Twnshp., Gen.
Oblig., F.G.I.C.,
Aaa $ 450 6.60%, 12/1/04......... $ 493,357
Aaa 445 6.60%, 12/1/05......... 489,242
Lenape Regl. High Sch.
Dist.,
Gen. Oblig.,
Aaa 400 7.625%, 1/1/12,
M.B.I.A.............. 484,080
Mercer Cnty. Impvt.
Auth. Rev.,
Aa1 2,500 Zero Coupon, 4/1/06.... 1,333,100
Aa1 2,725 Zero Coupon, 4/1/07.... 1,364,952
Solid Waste Site Proj.,
AAA* 1,500D 7.80%, 4/1/13, Ser.
A.................... 1,618,395
West Windsor Twnshp.
Police Proj.,
Aa 1,250 6.00%, 11/15/10........ 1,280,500
Middle Twnshp. Sch.
Dist.,
Aaa 1,200 7.00%, 7/15/05,
F.G.I.C.............. 1,352,988
Monmouth Cnty. Impvt.
Auth. Rev., Asbury
Park Proj.,
Baa 1,315 7.375%, 12/1/09........ 1,393,966
Howell Twnshp. Brd. of
Ed. Proj. Rev.,
AA* 2,000 6.45%, 7/1/08.......... 2,111,740
Nat'l Auth. Rev.,
AA* 4,065 6.55%, 7/1/12.......... 4,234,470
Water & Sewage Facs
Rev.,
Aaa 1,600 5.00%, 2/1/13,
M.B.I.A.............. 1,448,496
Wtr. Treatment Fac.,
Aaa 750 6.875%, 8/1/12,
M.B.I.A.............. 824,145
New Jersey Econ. Dist.
Heating & Cool.,
Trigen Trenton Proj.,
BBB-* 600 6.20%, 12/1/10......... 561,312
New Jersey St. Bldg.
Auth. Rev.,
Garden St. Svg.
Bonds,
Aa 890 Zero Coupon, 6/15/03,
Ser. A............... 562,818
New Jersey St. Econ.
Dev. Auth.,
Amer. Airlines Inc.
Proj.,
Baa2 $ 3,900 7.10%, 11/1/31......... $ 3,911,895
Jersey Central Pwr. &
Light,
AA 400 7.10%, 7/1/15.......... 414,596
Nat'l. Assoc. of
Accountants,
NR 1,050 7.50%, 7/1/01.......... 1,092,136
NR 950 7.65%, 7/1/09.......... 984,134
Natural Gas Facs. Rev.,
A2 1,000 7.25%, 3/1/21, Ser.
B.................... 1,033,320
Peddie School Project,
AA-* 1,600 5.75%, 2/1/12.......... 1,561,072
St Barnabas Reality
Project,
Aaa 3,000 5.25%, 7/1/20,
M.B.I.A.............. 2,687,070
New Jersey St. Econ.
Dist.
Heating & Cool.,
Trigen Trenton Proj.,
BBB-* 2,725 6.20%, 12/1/07......... 2,791,272
New Jersey St. Edl.
Facs. Fin. Auth.
Rev.,
Inst. For Advanced
Study,
Aaa 5,620 6.35%, 7/1/21.......... 5,739,594
Ramapo College, Ser. E,
M.B.I.A.,
Aaa 1,170 5.35%, 7/1/07.......... 1,170,819
Aaa 1,200 5.40%, 7/1/08.......... 1,189,764
Seton Hall Univ. Proj.,
6.25%, 7/1/07, Ser. B,
Aaa 680 M.B.I.A.............. 713,680
Baa1 2,000 7.00%, 7/1/21, Ser.
D.................... 2,069,840
Trenton St. Coll.,
Aaa 3,750 6.00%, 7/1/19,
A.M.B.A.C............ 3,768,225
New Jersey St. Hlth.
Care Facs. Fin. Auth.
Rev.,
Atlantic City Med.
Ctr.,
A 4,150 6.80%, 7/1/11, Ser.
C.................... 4,282,551
Burdette Tomlin Mem.
Hosp.,
8.125%, 7/1/12, Ser. C,
Aaa 1,000D F.G.I.C.,............ 1,091,540
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
New Jersey St. Hlth.
Care Facs. Fin. Auth.
Rev.,
East Orange Gen. Hosp.,
BBB+* $ 2,250 7.75%, 7/1/20, Ser.
B.................... $ 2,357,077
Helene Fuld Med. Ctr.,
A* 2,700 8.00%, 7/1/08, Ser.
C.................... 2,967,327
A* 500 8.125%, 7/1/13, Ser.
C.................... 548,815
Intercare Hlth.
Systems-
JFK Ctr.,
A 1,000 7.50%, 7/1/07.......... 1,065,480
A 1,000 7.625%, 7/1/18......... 1,073,650
Jersey Shore Med. Ctr.,
Aaa 1,465 6.00%, 7/1/09,
A.M.B.A.C............ 1,502,416
Aaa 1,500 6.25%, 7/1/21,
A.M.B.A.C............ 1,518,045
Kensington Cmnty. Med.
Ctr.,
Aaa 3,450 7.00%, 7/1/20,
M.B.I.A.............. 3,671,904
Rahway Hospital, Ser.
B,
Baa1 4,740 7.75%, 7/1/14.......... 4,784,366
Shore Mem. Hosp., Ser.
C,
Aaa 3,000D 7.875%, 7/1/07,
M.B.I.A.............. 3,260,310
St. Claires Riverside
Med. Ctr.,
7.60%, 7/1/02, Ser. D,
Aaa 1,750D B.I.G................ 1,890,087
Aaa 1,380D 7.75%, 7/1/14,
B.I.G................ 1,494,982
St. Peters Med. Ctr.,
M.B.I.A.,
Aaa 1,725D 6.50%, 7/1/07, Ser.
E.................... 1,872,488
New Jersey St. Hsg. &
Mtge.
Fin. Agcy.,
Aaa 4,830 7.70%, 10/1/29,
M.B.I.A.............. 5,148,249
Tiffany Manor,
A+* 2,190 6.75%, 11/1/11, Ser.
B.................... 2,243,064
New Jersey St. Hwy.
Auth.,
Garden St. Pkwy. Gen.
Rev.,
A1 3,035 6.20%, 1/1/10.......... 3,131,483
Aaa 4,365D 7.25%, 1/1/16.......... 4,779,413
New Jersey St Tpke.
Auth.
Rev., Series C,
M.B.I.A.,
Aaa 1,000 6.50%, 1/1/09.......... 1,074,770
Aaa 14,835 6.50%, 1/1/16.......... 16,023,432
A 2,000 6.75%, 1/1/08, Ser.
A.................... 2,122,000
New Jersey St.
Trans.Trust Fund
Auth.,
Aa $ 2,000 6.00%, 6/15/02, Ser.
A.................... $ 2,078,720
New Jersey St.
Wastewater Treatment,
Trust Loan Rev.,
Aa 1,000 6.875%, 6/15/06........ 1,080,290
Aa 7,090 6.875%, 6/15/08........ 7,651,882
Aa 1,000 6.00%, 7/1/09, Ser.
A.................... 1,019,600
North Brunswick
Twnshp.,
Brd. of Ed., Gen.
Oblig.,
Aa* 350 6.80%, 6/15/06......... 386,932
Aa* 350 6.80%, 6/15/07......... 385,945
Rict Hosp. Rev., Gen.
Oblig.,
Aa 2,000 6.40%, 5/15/10......... 2,117,460
Old Bridge Twnshp. Mun.
Utils. Auth., Sys.
Rev.,
Aaa 1,000D 8.00%, 11/1/16,
F.G.I.C.............. 1,072,640
Passaic Valley New
Jersey Water Comm.
Supply Rev.,
Aaa 5,000 5.00%, 12/15/22........ 4,357,600
Paterson Cnty.,
Aaa 2,000 6.50%, 2/15/05,
F.S.A................ 2,142,420
Pennsauken Twnshp.,
Brd. of Ed., Cert. of
Part.,
Aaa 1,030 7.70%, 7/15/09,
B.I.G................ 1,133,721
Pequannock Twnshp. Brd. of Ed.,
Cert. of Part.,
Aaa 750 7.875%, 3/1/08,
B.I.G................ 789,960
Port Auth. of New York
& New Jersey,
A1 2,000 5.00%, 7/15/23, Ser.
92................... 1,698,800
Port Authority New York
And New Jersey,
Series 96
Aaa 2,750 6.60%, 10/1/23,
F.G.I.C.............. 2,851,255
Puerto Rico Comnwlth.,
Gen. Oblig.,
Aaa 10,250 7.00%, 7/1/10,
A.M.B.A.C............ 11,667,575
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Puerto Rico Comnwlth.,
Pub. Impvt. Ref.,
Aaa $ 3,000 5.40%, 7/1/07,
M.B.I.A.............. $ 2,997,060
Aaa 1,000 7.00%, 7/1/10,
M.B.I.A.............. 1,138,300
Gen. Oblig.,
Aaa 3,000 5.50%, 7/1/08,
M.B.I.A.............. 2,999,850
Puerto Rico Elec. Pwr.
Auth.,
Pwr. Rev. Ref.,
Baa1 2,300 6.125%, 7/1/08......... 2,307,015
Baa1 1,500D 8.40%, 7/1/15, Ser.
L.................... 1,648,815
Puerto Rico Hsg. Fin.
Auth. Rev.,
Sngl. Fam.,
Baa 1,785 5.125%, 12/1/05........ 1,626,617
Baa 1,000 5.25%, 12/1/06......... 912,820
Puerto Rico Hsg. Fin.
Corp.,
Bank & Fin. Agcy.,
Baa 2,475 5.125%, 12/1/05........ 2,255,393
Puerto Rico Hwy. Auth.
Rev.,
AAA* 2,000D 7.75%, 7/1/10, Ser.
Q.................... 2,285,660
Baa1 1,000 6.75%, 7/1/05, Ser.
R.................... 1,045,700
BAA1 750D 6.50%, 7/1/22, Ser.
S.................... 821,340
Puerto Rico Indus.
Tourist
Edl. Hospital Auxilio
Mutuo Oblig. Grp A,
Aaa 3,000 6.25%, 7/1/24,
M.B.I.A.............. 3,070,290
Puerto Rico Pub. Bldgs.
Auth.,
Pub. Ed. & Hlth. Facs.,
Aaa 5,500D/DD 7.875%, 7/1/16, Ser.
H.................... 5,987,465
Puerto Rico Tel. Auth.
Rev.,
Ser. I, M.B.I.A.,
6.312%, 1/25/07, Ser.
Aaa 7,875 I, M.B.I.A........... 7,530,469
Rutgers St. Univ. Rev.,
A1 2,000 5.10%, 5/1/05.......... 1,944,200
Aaa 1,500D 8.10%, 5/1/07, Ser.
A.................... 1,629,600
A1 2,810 6.85%, 5/1/12, Ser.
P.................... 2,999,619
A1 5,000 6.40%, 5/1/13, Ser.
A.................... 5,252,950
Salem Cnty. New Jersey
Indus. Poll. Cntl.
Fin. Auth. Rev.,
Aaa $ 5,000 6.20%, 8/1/30,
M.B.I.A.............. $ 4,992,500
South Brunswick
Twnshp.,
Wtr. & Swr. Utils.,
Gen. Impvt.,
AA 850 6.90%, 8/1/05.......... 934,600
AA 850 6.90%, 8/1/06.......... 934,601
Union Cnty. Utils.
Auth.,
Solid Waste Rev.,
A-* 1,255 7.10%, 6/15/06, Ser.
A.................... 1,299,665
A-* 6,850 7.20%, 6/15/14, Ser.
A.................... 7,030,772
Virgin Islands Pub.
Fin. Auth. Rev.,
Hwy. Trans. Trust
Fund,
BBB* 2,750 7.70%, 10/1/04......... 2,967,690
Virgin Islands
Territory,
Hugo Ins. Claims Fund
Prog.,
NR 1,970 7.75%, 10/1/06, Ser.
91................... 2,110,638
West Morris Regl. High
Sch.
Dist., Cert. of
Part.,
Aaa 1,500 7.50%, 3/15/09,
B.I.G................ 1,633,260
West New York & New
Jersey, Mun. Utils.,
Auth.
Swr. Rev., F.G.I.C.,
Aaa 3,540 Zero Coupon,
12/15/06............. 1,813,648
Aaa 1,410 Zero Coupon,
12/15/12............. 489,806
Aaa 2,910 Zero Coupon,
12/15/13............. 945,663
------------
Total long-term
investments
(cost $288,249,123).... 300,394,197
------------
SHORT-TERM INVESTMENTS--0.6%
New Jersey Eco. Dev.
Auth. Rev., F.R.D.D.,
P1 200 3.90%, 3/1/95, Ser.
84A.................. 200,000
Port Auth. of New York
& New Jersey,
Spec. Oblig. Rev.,
F.R.D.D.,
VMIG1 600 3.60%, 3/1/95, Ser.
2.................... 600,000
</TABLE>
-9- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Puerto Rico Comnwlth.,
Gov't. Dev. Bank.,
F.R.W.D.,
VMIG1 $ 1,000 3.90%, 3/1/95, Ser.
85................... $ 1,000,000
------------
Total short-term
investments
(cost $1,800,000)...... 1,800,000
------------
Total Investments--99.0%
(cost $290,049,123;
Note 4).............. 302,194,197
Other assets in excess
of lia-
bilities--1.0%....... 2,898,757
------------
Net Assets--100%....... $305,092,954
------------
------------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.R.W.D.--Floating Rate (Weekly) Demand Note #.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
F.N.M.A.--Federal National Mortgage Association.
# For purposes of amortized cost valuation, the
maturity date of Floating Rate Demand Notes is
considered to be the later of the next date on
which the security can be redeemed at par, or the
next date on which the rate of interest is
adjusted.
* Standard & Poor's Rating.
@ Pledged as initial margin on financial futures
contracts.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate.
The rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
-10- See Notes to Financial
Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$290,049,123).............................................. $ 302,194,197
Cash.........................................................................
.......... 5,591
Interest
receivable....................................................................
3,978,702
Receivable for Fund shares
sold........................................................ 586,985
Deferred expenses and other
assets..................................................... 28,000
-----------------
Total
assets.......................................................................
306,793,475
-----------------
Liabilities
Payable for Fund shares
reacquired.....................................................
1,404,349
Due to
Distributors....................................................................
105,766
Dividends
payable......................................................................
102,534
Due to
Manager.........................................................................
75,322
Due to broker-variation
margin.........................................................
11,250
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities..................................................................
1,700,521
-----------------
Net
Assets.......................................................................
...... $ 305,092,954
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 282,734
Paid-in capital in excess of
par..................................................... 298,061,569
-----------------
298,344,303
Accumulated net realized loss on
investments......................................... (5,184,955)
Net unrealized appreciation on
investments........................................... 11,933,606
-----------------
Net assets, February 28,
1995........................................................ $ 305,092,954
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($38,975,846 / 3,611,853 shares of beneficial interest issued and
outstanding)..... $10.79
Maximum sales charge (3.0% of offering
price)........................................ .33
-----------------
Maximum offering price to
public..................................................... $11.12
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($265,374,089 / 24,592,686 shares of beneficial interest issued and
outstanding)... $10.79
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($743,019 / 68,857 shares of beneficial interest issued and
outstanding)........... $10.79
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
---------------
<S> <C>
Income
Interest............................ $ 9,875,557
---------------
Expenses
Management fee, net of waiver of
$215,889............................ 551,101
Distribution fee--Class A........... 8,314
Distribution fee--Class B........... 724,447
Distribution fee--Class C........... 1,460
Transfer agent's fees and
expenses............................ 76,000
Custodian's fees and expenses....... 55,000
Reports to shareholders............. 13,000
Registration fees................... 10,000
Audit fee........................... 5,300
Legal fees.......................... 5,000
Trustee's fees...................... 1,600
Miscellaneous....................... 10,535
---------------
Total expenses.................... 1,461,757
---------------
Net investment income................. 8,413,800
---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions............. (2,015,714)
Financial futures contract
transactions........................ (163,980)
---------------
(2,179,694)
---------------
Net change in unrealized
appreciation/depreciation on:
Investments......................... 327,979
Financial futures contracts......... (168,718)
---------------
159,261
---------------
Net loss on investments............... (2,020,433)
---------------
Net Increase in Net Assets
Resulting from Operations............. $ 6,393,367
---------------
---------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment
income................. $ 8,413,800 $ 18,099,624
Net realized loss on
investment
transactions......... (2,179,694) (1,294,945)
Net change in
unrealized
appreciation/depreciation
of investments....... 159,261 (23,297,125)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations........... 6,393,367 (6,492,446)
------------ ------------
Dividends and distributions (Note 1):
Dividends from net
investment income
Class A.............. (498,134) (831,601)
Class B.............. (7,905,269) (17,267,981)
Class C.............. (10,397) (42)
------------ ------------
(8,413,800) (18,099,624)
------------ ------------
Distributions from net
realized gains
Class A.............. -- (237,645)
Class B.............. -- (5,452,932)
Class C.............. -- --
------------ ------------
-- (5,690,577)
------------ ------------
Series share transactions
(net of share
conversions) (Note 5):
Net proceeds from
shares sold.......... 10,086,028 41,819,711
Net asset value of
shares issued in
reinvestment of
dividends and
distributions........ 5,045,048 14,387,672
Cost of shares
reacquired........... (46,108,111) (55,213,009)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions......... (30,977,035) 994,374
------------ ------------
Total decrease........... (32,997,468) (29,288,273)
Net Assets
Beginning of period...... 338,090,422 367,378,695
------------ ------------
End of period............ $305,092,954 $338,090,422
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984, and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The New Jersey Series (the ``Series'')
commenced investment operations in March 1988. The Series is diversified and
seeks to achieve its investment objective of obtaining the maximum amount of
income exempt from federal and applicable state income taxes with the minimum
of
risk by investing in ``investment grade'' tax-exempt securities whose ratings
are within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic or political developments in a specific
state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. The Series invests in financial futures contracts
solely for the purpose of hedging its existing portfolio securities or
securities the Series intends to purchase against fluctuations in value caused
by changes in prevailing market interest rates. Should interest rates move
unexpectedly, the Series may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss. The use of futures
transactions involves the risk of imperfect correlation in movements in the
price of futures contracts, interest rates and the underlying hedged assets.
Option Writing: When the Fund writes an option, an amount equal to the premium
received by the Fund is recorded as a liability and is subsequently adjusted to
the current market value of the option written. Premiums received from writing
options which expire unexercised are treated by the Fund on the expiration date
as realized gains from securities or currencies based upon the type of option
written. The difference between the premium and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium received is less than the amount paid for
the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities or currencies purchased by the Fund. The Fund as writer of an option
may have no control over whether the underlying securities may be sold (call)
or
purchased (put) and as a result bears the market risk of an unfavorable change
in the price of the security underlying the written option. There were no
written options outstanding at February 28, 1995.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original
-13-
<PAGE>
issue discount paid on purchases of portfolio securities as adjustments to
interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for short-term capital gains and market discount.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''). PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series. For the
four months ended December 31, 1994, PMF waived 25% of its management fee. For
the two months ended February 28, 1995, PMF waived 35% of its management fee.
The amount of fees waived for the six months ended February 28, 1995, amounted
to $215,889 ($0.01 per share for Class A, B and C shares; 0.14% of average net
assets, annualized). The Series is not required to reimburse PMF for such
waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the period ended February 28, 1995.
PMFD has advised the Series that it has received approximately $5,800 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $423,300 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C (per Note 5) shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the six months ended February 28, 1995, the Series incurred fees of
approximately $55,400 for the services of PMFS. As of February 28, 1995,
approximately $9,300 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995, were $67,254,371 and $98,614,829, respectively.
At February 28, 1995 the Series sold 12 financial futures contracts on the
Municipal Bond Index which expire in
-14-
<PAGE>
March 1995 and sold 17 financial futures contracts on U.S. Treasury Bonds which
expire in March 1995. The value at disposition of such contracts was $2,644,250.
The value of such contracts on February 28, 1995 was $2,855,718, thereby
resulting in an unrealized loss of $211,468.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation of investments for federal
income tax purposes is $12,145,074 (gross unrealized appreciation-- $14,600,598;
gross unrealized depreciation--$2,455,524.
The Fund will elect to treat net capital losses of approximately $2,941,904
incurred in the ten month period ended August 31, 1994 as having been incurred
in the following fiscal year.
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase commencing on or about February 1995.
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------- ---------- ------------
<S> <C> <C>
Year ended February 28, 1995:
Shares sold...................... 60,554 $ 622,088
Shares issued in reinvestment of
distributions.................. 30,264 317,588
Shares reacquired................ (206,178) (2,156,460)
---------- ------------
Net decrease in shares
outstanding before
conversion..................... (115,360) (1,216,784)
Shares issued upon conversion
from Class B................... 2,360,450 25,124,678
---------- ------------
Net increase in shares
outstanding.................... 2,245,090 $ 23,907,894
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- --------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1994:
Shares sold...................... 314,116 $ 3,550,381
Shares issued in reinvestment
of dividends and
distributions.................. 62,184 699,684
Shares reacquired................ (329,592) (3,698,430)
---------- ------------
Net increase in shares
outstanding.................... 46,708 $ 551,635
---------- ------------
---------- ------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Year ended February 28, 1995:
Shares sold...................... 857,001 $ 8,981,064
Shares issued in reinvestment
of distributions............... 452,568 4,719,511
Shares reacquired................ (4,246,167) (43,951,333)
---------- ------------
Net decrease in shares
outstanding before
conversion..................... (2,936,598) (30,250,758)
Shares reacquired upon conversion
into Class A................... (2,360,450) (25,124,678)
---------- ------------
Net decrease in shares
outstanding.................... (5,297,048) $(55,375,436)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold...................... 3,349,228 $ 38,030,222
Shares issued in reinvestment
of dividends and
distributions.................. 1,214,942 13,687,960
Shares reacquired................ (4,642,077) (51,514,579)
---------- ------------
Net increase in shares
outstanding.................... (77,907) $ 203,603
---------- ------------
---------- ------------
<CAPTION>
Class C
- ---------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold...................... 45,951 $ 482,876
Shares issued in reinvestment
of dividends................... 760 7,949
Shares reacquired................ (30) (318)
---------- ------------
Net increase in shares
outstanding.................... 46,681 $ 490,507
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold...................... 22,173 $ 239,108
Shares issued in reinvestment
of dividends................... 3 28
Shares reacquired................ -- --
---------- ------------
Net increase in shares
outstanding.................... 22,176 $ 239,136
---------- ------------
---------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-15-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year Ended August
31, through
February 28,
- ----------------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C> <C>
<C> <C>
------------ ------------ -------
- ------- ------ -----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 10.81 $ 11.74 $ 11.15 $
10.73 $10.16 $ 10.30
------------ ------------ -------
- ------- ------ -----------
Income from investment
operations
Net investment income@..... .31 .61 .64
.67 .69 .41
Net realized and unrealized
gain (loss) on investment
transactions............. (.02) (.75) .71
.51 .59 (.14)
------------ ------------ -------
- ------- ------ -----------
Total from investment
operations............. .29 (.14) 1.35
1.18 1.28 .27
------------ ------------ -------
- ------- ------ -----------
Less distributions
Dividends from net
investment income........ (.31) (.61) (.64)
(.67) (.69) (.41)
Distributions from net
realized gains on
investment
transactions............. -- (.18) (.12)
(.09) (.02) --
------------ ------------ -------
- ------- ------ -----------
Total distributions...... (.31) (.79) (.76)
(.76) (.71) (.41)
------------ ------------ -------
- ------- ------ -----------
Net asset value, end of
period................... $ 10.79 $ 10.81 $ 11.74 $
11.15 $10.73 $ 10.16
------------ ------------ -------
- ------- ------ -----------
------------ ------------ -------
- ------- ------ -----------
TOTAL RETURN#:............. 2.82% (1.27)% 12.57%
11.35% 12.96% 2.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................... $ 38,976 $ 14,774 $15,501
$11,941 $8,041 $ 3,616
Average net assets (000)... $ 16,766 $ 15,334 $13,444 $
9,759 $5,637 $ 1,902
Ratios to average net
assets:@
Expenses, including
distribution fees...... .56%* .58% .61%
.48% .29% .20%*
Expenses, excluding
distribution fees...... .46%* .48% .51%
.38% .19% .10%*
Net investment income.... 5.99%* 5.42% 5.63%
6.14% 6.58% 6.79%*
Portfolio turnover......... 23% 34% 32%
38% 116% 87%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
@ Net of management and/or distribution fee waiver.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
See Notes to Financial Statements.
-16-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
Class C
- --------------------------------------------------------------------
- ----------------------
Six
Six
Months
Months August 1,
Ended
Ended 1994DD
February Year Ended
August 31, February through
28,
- -------------------------------------------------------- 28, August
31,
1995 1994 1993 1992
1991 1990 1995 1994
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
-------- -------- -------- --------
-------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................ $ 10.81 $ 11.74 $ 11.15 $ 10.73
$ 10.16 $ 10.33 $ 10.81 $10.83
-------- -------- -------- --------
-------- -------- -------- ----------
Income from investment
operations
Net investment income@.......... .29 .56 .59 .63
.65 .67 .27 .04
Net realized and unrealized gain
(loss) on investment
transactions.................. (.02) (.75) .71 .51
.59 (.14) (.02 ) (.02)
-------- -------- -------- --------
-------- -------- -------- ----------
Total from investment
operations.................. .27 (.19) 1.30 1.14
1.24 .53 .25 .02
-------- -------- -------- --------
-------- -------- -------- ----------
Less distributions
Dividends from net investment
income........................ (.29) (.56) (.59) (.63)
(.65) (.67) (.27 ) (.04)
Distributions from net realized
gains on investment
transactions.................. -- (.18) (.12) (.09)
(.02) (.03) -- --
-------- -------- -------- --------
-------- -------- -------- ----------
Total distributions........... (.29) (.74) (.71) (.72)
(.67) (.70) (.27 ) (.04)
-------- -------- -------- --------
-------- -------- -------- ----------
Net asset value, end of
period........................ $ 10.79 $ 10.81 $ 11.74 $ 11.15
$ 10.73 $ 10.16 $ 10.79 $10.81
-------- -------- -------- --------
-------- -------- -------- ----------
-------- -------- -------- --------
-------- -------- -------- ----------
TOTAL RETURN#:.................. 2.61% (1.67)% 12.12% 10.93%
12.52% 5.28% 2.49% 0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $265,374 $323,077 $351,878 $295,781
$244,322 $180,636 $ 743 $ 240
Average net assets (000)........ $292,180 $343,941 $316,372 $269,318
$208,893 $155,162 $ 393 $ 11
Ratios to average net assets:@
Expenses, including
distribution fees........... .96%* .98% 1.01% .88%
.69% .50% 1.21%* 1.29%*
Expenses, excluding
distribution fees........... .46%* .48% .51% .38%
.19% .10% .46%* .54%*
Net investment income......... 5.46%* 5.02% 5.23% 5.74%
6.18% 6.50% 5.34%* 5.06%*
Portfolio turnover.............. 23% 34% 32% 38%
116% 87% 23% 34%
</TABLE>
- ---------------
* Annualized.
DD Commencement of offering of Class C shares.
@ Net of management and/or distribution fee waiver.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than
a full year are not annualized.
See Notes to Financial Statements.
-17-
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M788 MF138E2
74435M796 Cat. #642874
74435M531 (LOGO)<PAGE>
The Prudential
Municipal Series
Fund, INc.
New Jersey Money Market
- -----------------------------------
Letter to Shareholders
April 3, 1995
Dear Shareholder:
Over the past six months, the Federal Reserve has been busy raising
short-term interest rates, which had a positive effect on both the
taxable and tax-exempt money markets. We are pleased to report that
the yield on your Prudential Municipal Series Fund -- New Jersey Money
Market Series increased close to one full percentage point to 3.4% from
2.5%.
<TABLE>
SERIES' PERFORMANCE
As of February 28, 1995
<CAPTION>
7-Day
Weighted
Net Current Tax Equivalent Yield
Average
Assets (mil.) Yield @31% @36% @39.6%
Maturity
<S> <C> <C> <C> <C> <C> <C>
NJ Money
Market Series $174 3.4% 5.3% 5.7% 6.1% 53
days
Donoghue New Jersey
Tax-Exempt Funds* N/A 3.4% 5.3% 5.7% 6.0% 51
days
</TABLE>
Note: Yields will fluctuate from time to time and past performance
is no guarantee of future results. An investment in the Series is neither
insured nor guaranteed by the U.S. government and there can be no
assurance that the Series will be able to maintain a stable net
asset value.
* Donoghue returns as of 2/27/95.
Fund Overview.
Your New Jersey Money Market Series seeks to provide a high level of
income which is exempt from New Jersey and federal income taxes, while
maintaining a stable net asset value of $1 per share. There can be no
assurance that the Series' investment objective will be achieved. The
Series invests primarily in high quality, short-term, tax-exempt New
Jersey state, municipal and local bonds and bonds from other qualifying
issuers.
The Federal Reserve Tightens.
The U.S. economy grew in 1994 at the robust annual rate approximating 4%,
a stronger rate than many had anticipated as the year began. Three million
new jobs were created during the year and consumer confidence was at a
four-year high. Fearing that this dramatic growth would increase inflation,
the
-1-
<PAGE>
Federal Reserve started to increase short-term interest rates. By
February, 1995, the central bank had increased the federal funds rate (the
overnight interbank lending rate) seven times, doubling the rate to 6% from
3% in a year.
There were some indications in late February that the Federal Reserve was
having some success in slowing economic growth. Inflation remains below 3%,
with no signs of rising anytime soon. Commodities prices (one precursor of
inflation) have traded within an acceptable range throughout the year, while
wages (another leading indicator) have stayed flat. With economic growth
slowing, we don't expect wage and price pressures to develop anytime soon.
On the Hill:
In 1995, Congress will most likely consider
an initiative that would restore full income
tax deductibility for individual retirement
account (IRA) contributions for middle-income
wage earners. In addition, Congress may also
consider the creation of a new tax-deferred
savings account called the "American Dream
Savings Account." Prudential Mutual Funds
supports both of these proposals, and we urge
you to share your opinion with your Congressional
representatives. We will keep you updated on
these initiatives as they make their way through
the legislative process.
Rising Rates Were Beneficial.
Rising rates were good news for the New Jersey Money Market Series.
The Series' seven-day current yield on February 28, 1995 stood at 3.4%,
which is nearly one full percentage point higher than the 2.5% recorded
on August 31, 1994. An individual in the 39.6% federal tax bracket
would have to have earned 6.1% from a taxable investment to match
this return.
Over the past six months, the Series moved to take advantage of
rising interest rates. We shortened our weighted average maturity
(WAM) to 45 days on November 14, anticipating the central bank's
move later that month. After the Federal Reserve increased interest
rates, we extended maturity.As of February 28, WAM stood at 53 days
(compared to 51 days for the Donoghue average) because we believed
the municipal market was somewhat overvalued.
Since November, our emphasis has been to selectively purchase securities
with maturities in the six-month to one-year range, because we believe
that the majority of interest rate hikes are behind us now. For example,
we invested $6 million in bond anticipation notes issued by Burlington
County, maturing on November 30, 1995.
New Jersey & Growth, Perfect Together.
New Jersey continues to lead the tri-state area in its recovery from
the recessionary climate of the early 1990s. Unemployment, while still
higher than the national average, is falling faster than in New York or
Connecticut. Governor Christine Whitman's budget calls for income tax
reductions and a reorganization of government functions to position the
state for long-term growth. The budget proposes to take the state from
a $2 billion deficit to a $500 million surplus. If this occurs, New
Jersey should be able to maintain their high credit rating.
-2-
<PAGE>
Seasonal Factors Affect The Municipal Market, Too.
While rising interest rates in the taxable market affects the tax-exempt
market, it takes time before the full impact is felt. In addition, the
municipal market is more sensitive to seasonal supply and demand factors
that cause volatility in short-term, tax-exempt rates.
For example, 7-day securities in the national tax-exempt market at the
end of December yielded almost 6% on an annualized basis, as investors
withdrew money for holiday spending. This drove the supply of short-term
bonds up, prices down and yields higher. The reverse occurred by mid
January as assets flowed again into tax-exempt funds lowering yields to
3%. There are other times when this seasonal factor occurs, such as in
April when income taxes are due and investors liquidate some of their
money market positions to pay their income tax bills.
The Outlook.
We believe 1995 should be a positive year for money market investors
highlighted by moderate U.S. economic growth at a rate that is manageable.
Inflation may edge up a bit, but an increase has already been discounted
by the markets.
As always, it is a pleasure to work for you. We are pleased to be able
to report this news to you and thank you for the confidence you have
shown in us by choosing the Prudential Municipal Series Fund -- New
Jersey Money Market Series.
Sincerely,
Lawrence C. McQuade
President
Kenneth Potts
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
NEW JERSEY MONEY MARKET SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Atlantic Cnty. Impvt.
Auth. Rev.,
4.00%, 3/1/95, Ser. 86,
VMIG1 $ 1,300 F.R.W.D.,............. $ 1,300,000
Burlington County
B.A.N.,
NR 6,000 5.00%, 11/30/95......... 6,012,872
East Brunswick Twnshp.,
B.A.N.,
NR 7,000 5.75%, 1/3/96........... 7,039,340
Gloucester Cnty. Ind. Poll. Ctrl.,
Fin. Auth. Rev., F.R.W.D.,
P1 4,610 3.50%, 3/1/95........... 4,610,000
4.00%, 3/1/95, Ser.
P1 3,120 92.................... 3,120,000
Hudson Cnty. Impvt.
Auth., Rev., F.R.W.D.,
A-1* 4,445 4.20%, 3/2/95, Ser.86... 4,445,000
Jackson Cnty. Port Fac.
Rev., F.R.D.D.,
3.90%, 3/1/95, Ser.
P1 2,500 93.................... 2,500,000
Jersey City, B.A.N.,
4.75%, 9/29/95, Ser.
NR 5,000 94.................... 5,012,522
Maplewood Twnshp.,
B.A.N.,
NR 5,318 5.25%, 10/17/95......... 5,335,999
New Jersey St. Econ.
Dev. Auth.,
American Water Co. Proj.
3.55%, 3/1/95, Ser. 94B
VMIG1 8,000 F.R.W.D............... 8,000,000
Applewood Ctr. for
Aging,
4.00%, 3/2/95, Ser.89,
A-1* 8,750 F.R.W.D............... 8,750,000
Catholic Cmnty. Svcs
Proj.,
3.90%, 3/2/95, Ser. 89,
VMIG1 6,000 F.R.W.D............... 6,000,000
Chambers Cogeneration
Ltd., Ser. 91,
T.E.C.P.,
VMIG1 3,000 3.75%, 3/10/95.......... 3,000,000
VMIG1 4,400 4.00%, 4/13/95.......... 4,400,000
Dow Chemical,
3.90%, 3/1/95, Ser. 84A,
P1 3,400 F.R.D.D............... 3,400,000
Econ. Growth Bds,
3.95%, 3/2/95, Ser. 94B,
A-1+* 2,000 F.R.W.D............... 2,000,000
Franciscan Oaks Proj.,
3.85%, 3/1/95, Ser. 92B,
A-1+* $ 1,600 F.R.W.D............... $ 1,600,000
Friendship Village
Proj.,
4.00%, 3/2/95, Ser. 95,
VMIG1 7,000 F.R.W.D............... 7,000,000
Gen. Motors Proj.,
3.90%, 3/7/95,
VMIG2 7,350 F.R.W.D............... 7,350,000
Hoffman Louisiana Roche
Inc. Proj.,
3.90%, 3/1/95, Ser.
Aaa 6,500 93,................... 6,500,000
Kent Place,
4.00%, 3/2/95, Ser. 92L,
VMIG1 1,940 F.R.W.D............... 1,940,000
Keystone Proj.,
3.75%, 3/15/95, Ser. 92,
VMIG1 2,600 T.E.C.P............... 2,600,000
Marriot Corp. Proj.,
3.80%, 3/1/95, Ser. 84,
P-1 6,700 F.R.W.D............... 6,700,000
Michael Shalit Proj.,
3.90%, 3/1/95, Ser. 93,
Aa3 1,830 F.R.D.D............... 1,830,000
North Plainfield Hldg.,
4.10%, 9/1/95, Ser. 92,
VMIG1 4,115 F.R.W.D............... 4,115,000
Office Court Assoc.
Proj.,
3.95%, 3/1/95,
A-1+* 1,900 F.R.W.D............... 1,900,000
Peddie Sch. Proj.,
4.10%, 3/2/95, Ser. 94B,
A-1* 3,000 F.R.W.D............... 3,000,000
RJB Associates LTD,
4.10%, 3/2/95,
Aa3 1,580 F.R.W.D............... 1,580,000
Russ Berrie & Co.,
4.25%, 3/1/95, Ser.83,
A-1* 200 F.R.W.D............... 200,000
New Jersey St. Tpke. Auth. Rev.,
3.75%, 3/1/95, Ser.
VMIG1 11,000 91-D, F.R.W.D......... 11,000,000
New Jersey St., Gen.
Oblig.,
Aa1 2,150 5.80%, 8/1/95........... 2,163,549
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
North Brunswick Twnshp.,
B.A.N.,
NR $ 3,400 3.79%, 4/7/95........... $ 3,400,613
Port Auth. of New York &
New Jersey,
3.8955%, 3/7/95,
NR 8,000 Ser. 93-2, F.R.W.D.... 8,000,000
KIAC Partners, F.R.W.D.,
3.95%, 3/1/95, Ser.
VMIG1 2,900 93-2.................. 2,900,000
Spec. Oblig. Rev.,
F.R.D.D.,
3.60%, 3/1/95, Ser.
VMIG1 6,800 93-2.................. 6,800,000
Puerto Rico Comnwlth.,
Gov't. Dev. Bank.,
F.R.W.D.,
3.90%, 3/1/95, Ser.
VMIG1 7,400 85.................... 7,400,000
West New York,
NR 2,900 4.65%, 7/7/95, B.A.N.... 2,903,447
West Orange Twnshp.,
B.A.N.,
NR 3,197 4.50%, 6/7/95........... 3,202,010
NR 1,802 3.99%, 6/13/95.......... 1,802,200
------------
Total Investments--98.0%
(amortized
cost--$170,812,552**)... 170,812,552
Other assets in excess
of
liabilities--2.0%..... 3,563,212
------------
Net Assets--100%........ $174,375,764
------------
------------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.R.W.D.--Floating Rate (Weekly) Demand Note #.
T.E.C.P.--Tax Exempt Commercial Paper.
# For purposes of amortized cost valuation, the maturity date of such
securities are considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
* Standard & Poor's rating.
** The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at amortized cost which approximates market
value......................... $ 170,812,552
Cash.........................................................................
.......... 2,046,397
Receivable for Fund shares
sold........................................................ 2,570,705
Interest
receivable....................................................................
1,123,633
Deferred expenses and other
assets..................................................... 7,879
-----------------
Total
assets.......................................................................
176,561,166
-----------------
Liabilities
Payable for Series shares
reacquired................................................... 2,041,459
Management fee
payable.................................................................
50,719
Accrued expenses and other
liabilities................................................. 48,712
Dividends
payable......................................................................
34,808
Distribution fee
payable...............................................................
8,404
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities..................................................................
2,185,402
-----------------
Net
Assets.......................................................................
...... $ 174,375,764
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value..................................... $ 1,743,758
Paid-in capital in excess of
par..................................................... 172,632,006
-----------------
Net assets, February 28,
1995........................................................ $ 174,375,764
-----------------
-----------------
Net asset value, offering price and redemption price per share ($174,375,764
/
174,375,764 shares of beneficial interest issued and outstanding; unlimited
number
of shares
authorized)..............................................................
$1.00
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest and discount earned.......... $ 2,880,791
------------
Expenses
Management fee, net of waiver of
$100,658.............................. 301,974
Distribution fee...................... 100,658
Transfer agent's fees and expenses.... 39,000
Custodian's fees and expenses......... 25,000
Reports to shareholders............... 17,000
Registration fees..................... 17,000
Legal fees............................ 5,000
Audit fee............................. 5,000
Deferred organization expenses........ 3,300
Insurance expense..................... 2,000
Trustees' fees........................ 1,600
Miscellaneous......................... 4,002
------------
Total expenses................... 521,534
------------
Net investment income................... 2,359,257
------------
Net Increase in Net Assets
Resulting from Operations............... $ 2,359,257
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------- -------------
<S> <C> <C>
Operations
Net investment
income................ $ 2,359,257 $ 3,169,992
------------- -------------
Net increase in net
assets resulting
from operations..... 2,359,257 3,169,992
------------- -------------
Dividends to
shareholders.......... (2,359,257) (3,169,992)
------------- -------------
Series share
transactions
(at $1 per share)
Net proceeds from
shares subscribed... 272,758,901 559,956,516
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends........... 2,329,999 3,057,774
Cost of shares
reacquired............ (258,993,058) (567,821,169)
------------- -------------
Net increase
(decrease) in net
assets from Series
share
transactions........ 16,095,842 (4,806,879)
------------- -------------
Total increase
(decrease)............ 16,095,842 (4,806,879)
Net Assets
Beginning of period..... 158,279,922 163,086,801
------------- -------------
End of period........... $ 174,375,764 $ 158,279,922
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-7-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The New Jersey Money Market Series (the
``Series'') commenced investment operations on December 3, 1990. The Series is
non-diversified and seeks to achieve its investment objective of providing the
highest level of income that is exempt from New Jersey State and federal income
taxes with a minimum of risk by investing in ``investment grade'' tax-exempt
securities maturing within 13 months or less and whose ratings are within the
two highest ratings categories by a nationally recognized statistical rating
organization, or if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic developments in a specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Deferred Organization Expenses: The Series incurred $32,200 in organization and
initial registration expenses. Such amount has been deferred and is being
amortized over a period of 60 months ending December 1995.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of each of the Series.
For the six months ended February 28, 1995, PMF waived 25% of its managements
fee. The amount of such fees waived for the six months ended February 28, 1995
amounted to $100,658 ($.001 per share; .125% of average net assets).
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable monthly, at an annual rate of .125 of 1% of the Series'
average daily net assets. PMFD pays various broker-dealers, including Prudential
Securities Incorporated (``PSI'') and Pruco Securities Corporation, affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
-8-
<PAGE>
<PAGE>
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. For the
six months ended February 28, 1995, the Series incurred fees of approximately
$37,000 for the services of PMFS. As of February 28, 1995, approximately $6,900
of such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations include certain out-of-pocket expenses paid to non-affiliates.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
December 3,
Six Months
1990*
Ended
Year Ended August 31, Through
February 28,
- ---------------------------------- August 31,
1995
1994 1993 1992 1991
------------
- ---------- -------- -------- -----------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains+.............. .01
.02 .02 .04 .03
Dividends and distributions................................ (.01)
(.02) (.02) (.04) (.03)
------------
- ---------- -------- -------- -----------
Net asset value, end of period............................. $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
- ---------- -------- -------- -----------
------------
- ---------- -------- -------- -----------
TOTAL RETURN#:............................................. 1.46%
1.90% 2.31% 3.48% 3.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................ $ 174,376
$ 158,280 $163,087 $164,092 $ 117,460
Average net assets (000)................................... $ 162,387
$ 169,123 $170,103 $155,915 $ 89,273
Ratios to average net assets+:
Expenses, including distribution fee..................... .65%**
.68% .64% .32% .13%**
Expenses, excluding distribution fee..................... .52%**
.55% .51% .19% .00%**
Net investment income.................................... 2.92%**
1.87% 2.02% 3.33% 4.48%**
</TABLE>
- ---------------
* Commencement of investment operations.
** Annualized.
D Net of management fee waiver and/or expense subsidy.
# Total return includes reinvestment of dividends and distributions. Total
returns for periods of less than one year are not annualized.
See Notes to Financial Statements.
-10-
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- --------------------------
(ICON)
New York Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued, tax-exempt bonds became scarce. We are pleased to report
that your Prudential Municipal Series Fund -- New York Series has earned
a positive total return, performing better than the average New York
municipal bond fund as measured by Lipper Analytical Services, Inc.
Less Means More...
For You!
Prudential mutual fund shareholders will be
seeing total returns increase in the months
to come, thanks to a reduction in Fund management
expenses. Prudential Mutual Funds lowered the
rate on January 1, 1995, to 0.45% from 0.50%.
It is our way of showing you that we appreciate
your business and that we remain committed to
managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 2.9% 0.8% 46.8% N/A 47.2%
Class B 2.7% 0.4% 43.8% 121.5% 135.2%
Class C 2.6% N/A N/A N/A 2.7%
Lipper NY
Muni. Avg3 1.8% -0.4% 44.9% 135.8% 151.2%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 5.8% 8.2% N/A 7.9%
Class B 5.4% 7.8% 8.3% 8.6%
Class C N/A N/A N/A 3.4%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management, Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3% for
Class A shares. Class B shares are subject to a contingent deferred sales
charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares have a
1% CDSC for one year. Class B shares will automatically convert to Class
A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/27/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 77 funds for six months, 71 funds for one
year, 37 funds for five years, 14 funds for 10 years, and 13 funds since
inception of Class B shares on 9/27/84.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from New York state, New York City,
and federal income taxes consistent with preservation of capital. Certain
shareholders may be subject to the federal alternative minimum tax, however.
The Series will invest primarily in New York state, New York City, municipal
and local government obligations and obligations of U.S. territories (such
as Puerto Rico, the U.S. Virgin Islands and Guam), the income from which
is also exempt from federal, New York state, and New York City income taxes.
On the Hill...
In 1995, Congress will most likely consider
an initiative that would restore full income
tax deductibility for individual retirement
account (IRA) contributions for middle-income
wage earners. In addition, Congress may
also consider the creation of a new tax-deferred
savings account called the "American Dream Savings
Account." Prudential Mutual Funds supports both of
these proposals, and we urge you to share your
opinion with your Congressional representatives.
We will keep you updated on these initiatives as
they make their way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds
rate (the interbank overnight lending rate), investors began to believe
that the economy was showing signs of slowing. As a result, long-term
interest rates in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In
fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below
its 1994 high -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and those
with lower coupons, sometimes called premium and discount bonds. The higher
yielding premium bonds help cushion the impact of rising interest rates while
the lower coupon or discount bonds offer price appreciation potential when
interest rates decline.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many issuers
reluctant to borrow money. In fact, the Revenue Bond Index rose dramatically
to 6.9% from 5.5% -- nearly one and a half percentage points. As a result,
the level of new bonds issued nationwide fell by 44% and in New York by 39%.
-2-
<PAGE>
New York: Facing A Challenging Year.
New York has a new governor who wants to reduce income taxes while both
the economy and revenues are growing slowly. The state's fiscal situation
bears watching closely this year.
The state and the region are gradually recovering from recession. New York
created 217,000 new jobs in 1994, reducing its unemployment rate to 5.4%
from 7.6%. The preliminary budget news is good: the state budget's general
fund produced a $1 billion surplus prior to transfers for the second year
in a row in fiscal 1994, and the state expects to eliminate a mid-year
deficit to end fiscal 1995 on a positive note.
But fiscal 1996 may require hard choices. The Empire State faces a $4 to
$5 billion budget deficit, which will require significant budget cuts.
Among these will likely be a decrease in Medicaid funding, which accounted
for up to 20% of state revenues as recently as 1993.
A Tax Reminder...
As a result of the Revenue Reconciliation Act
of 1993, it is possible that this year you may
have some taxable income from your normally
tax-exempt municipal bond fund. The law stipulates
that the portion of any gain realized on the sale
or retirement of a tax-exempt bond purchased at a
market discount to its face value may be taxed as
ordinary income. The law affects bonds purchased
after April 30, 1993.
Our Strategy.
New York City bonds offer investors higher coupons than can generally be
found in other states. In the last six months, as these bonds became
attractively priced, the Series purchased additional issues, some of
which yield as much as 8%. The Series now holds about 6.5% of assets
in New York City bonds that are also insured.
The purchase of these New York City bonds was part of our decision to take
advantage of lower prices of insured bonds late last year and to enhance
the quality of the overall portfolio. Nearly 44% of assets are now rated
triple-A or insured, compared to 37% six months ago. In addition, we have
purchased utility and industrial development bonds, believing they were
undervalued, and sold housing and transportation bonds.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last
six months. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.
We believe long-term interest rates will stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we expect the supply of
tax-exempt municipals to continue to contract, which should also provide an
additional reward to investors by supporting prices.
-3-
<PAGE>
Fund Update
Starting in February 1995, Class B shareholders
may have begun to notice a change in their Fund
holdings. That's when Class B shares began to
automatically convert to Class A shares, on a
quarterly basis, approximately seven years after
purchase. As you may know, Class A shares generally
carry lower annual distribution expenses than
Class B shares. Accordingly, after conversion
you will earn higher total returns on your investment
than you would have as a Class B shareholder.
Following the May cycle, conversions of eligible Class B
shares and special exchanges of Class B and C shares
will take place each calendar quarter (March, June,
September and December) starting in September 1995.
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- New York Series through a
most difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Carla Wrocklage
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds chief
fixed income strategist Dennis Bushe about why bonds and bond mutual funds
may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
this risk, and that may be especially important in 1995. First of all, if the
U.S. economy is beginning to slow down, as many economists believe, then
credit quality is a concern. A credit team becomes very valuable, carefully
selecting bonds in different sectors and industries for bond portfolios. In
addition, few individual investors have the resources or clout to continually
monitor companies, unearth possible credit problems before they surface, and
negotiate favorable terms with troubled issuers -- a bond fund does. Finally,
the diversification of a bond fund may help investors avoid wide price swings
if one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
NEW YORK SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--99.0%
34th St Partnership
Inc.,
Business Improv.
Dist.,
A1 $ 1,000 5.50%, 1/1/23.......... $ 877,760
Babylon Ind. Dev. Agcy.
Res. Rec. Rev.,
Babylon Cmnty.
Waste Mgmt. Facs.,
7.875%, 7/1/06, Ser.
Baa1 3,520D A.................... 3,974,397
Ogden Martin Sys. Inc.,
8.50%, 1/1/19, Ser.
Baa1 495 B.................... 536,382
8.50%, 1/1/19, Ser.
Baa1 3,450 C.................... 3,738,420
City of New Rochelle Ind. Dev.
Agcy., Coll. of New Rochelle,
BBB-* 500 6.625%, 7/1/12......... 499,940
BBB-* 2,000 6.75%, 7/1/22.......... 1,984,920
Clifton Park Wtr.
Auth.,
Wtr. Sys. Rev.,
5.00%, 10/1/26,
Aaa 2,000 F.G.I.C.............. 1,703,080
Dutchess Cnty. Res. Rec. Agcy.
Rev., Solid Waste Mgmt.,
F.G.I.C.,
7.50%, 1/1/09, Ser.
Aaa 1,150 A.................... 1,261,067
Great Neck No. Wtr.
Auth.,
Wtr. Sys. Rev.,
7.00%, 1/1/18, Ser.
A1 1,750D A.................... 1,918,298
Guam Pwr. Auth. Rev.,
6.30%, 10/1/22, Ser.
BBB* 1,750 A.................... 1,690,010
Islip Res. Rec.,
A.M.B.A.C.,
7.20%, 7/1/10, Ser.
Aaa 1,745 B.................... 1,986,944
Jefferson Cnty. Ind. Dev. Agcy.
Solid Waste Disp. Rev.,
Baa1 1,500 7.20%, 12/1/20......... 1,553,730
Metro. Trans. Auth.
Facs. Rev.,
Commuter Facs.,
Zero Coupon, 7/1/08,
Baa1 4,030 Ser. 7............... 1,714,282
Zero Coupon, 7/1/09,
Baa1 4,445 Ser. 7............... 1,771,110
Zero Coupon, 7/1/12,
Aaa 5,575 Ser. N, F.G.I.C...... 2,016,756
Baa1 5,000 6.00%, 7/1/21.......... 4,734,200
Trans. Facs.,
5.75%, 7/1/08, Ser.
Baa1 2,500 O.................... 2,363,975
Nassau Cnty. Ind. Dev. Agcy. Rev.,
Hofstra Univ. Proj.,
A $ 2,500D 8.25%, 7/1/03.......... $ 2,759,050
Long Beach Proj.,
NR 1,420** 9.25%, 1/1/97.......... 823,600
S&S Incinerator Jt.
Venture Proj.,
NR 2,785** 9.00%, 1/1/07.......... 1,615,300
Nassau Cnty. Swr. Gen.
Oblig., F.G.I.C.,
Ser. B,
Aaa 3,000 4.75%, 5/1/06.......... 2,766,540
Aaa 3,845 4.80%, 5/1/07.......... 3,537,438
New York City, Gen.
Oblig.,
8.00%, 6/1/99, Ser.
Baa1 1,900 B.................... 2,035,508
7.50%, 2/1/01, Ser.
Baa1 4,000 B.................... 4,264,480
7.75%, 3/15/03, Ser.
Baa1 3,500 A.................... 3,792,600
8.00%, 8/1/03, Ser.
Baa1 2,500 D.................... 2,781,700
8.20%, 11/15/03, Ser.
Baa1 3,000 F.................... 3,384,840
7.70%, 2/1/09, Ser.
Baa1 3,040 D.................... 3,238,330
5.50%, 10/1/09, Ser.
Baa1 2,500 C.................... 2,233,900
New York City Ind. Dev. Agcy.,
Spec. Fac. Rev., Term.
One Group Assoc. Proj.,
A 5,000 6.00%, 1/1/15.......... 4,722,900
U.S.T.A. National
Tennis Center Proj.,
Aaa 1,000 6.375%, 11/15/14....... 1,024,340
Y.M.C.A. Of Greater N.Y. Proj.,
NR 1,350 8.00%, 8/1/16.......... 1,422,427
New York City Mun. Wtr.
Fin.
Auth. Rev., Wtr. &
Swr. Sys.,
5.50%, 6/15/11, Ser. F,
Aaa 1,500 A.M.B.A.C............ 1,446,705
7.375%, 6/15/13, Ser.
Aaa 4,000D@ C.................... 4,528,280
7.25%, 6/15/15, Ser. A,
Aaa 3,000D M.B.I.A.............. 3,337,770
New York City Transit
Auth.,
5.40%, 1/1/18, Ser.
Aaa 2,650 1993, F.S.A.......... 2,428,831
New York St. Dorm. Auth. Rev.,
City Univ. Sys. Cons.,
8.75%, 7/1/02, Ser.
Baa1 5,000 D.................... 5,903,850
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
New York St. Dorm. Auth. Rev.,
City Univ. Sys. Cons.,
8.00%, 7/1/07, Ser.
Aaa $ 5,000D@ A.................... $ 5,451,050
8.125%, 7/1/07, Ser.
Baa1 3,435 A.................... 3,684,141
7.00%, 7/1/09, Ser.
Baa1 1,880 D.................... 2,006,505
7.50%, 7/1/10, Ser. C,
Aaa 3,500 F.G.I.C.............. 4,102,630
Baa1 2,000 5.75%, 7/1/13.......... 1,862,680
Coll. & Univ. Ed.,
Zero Coupon, 7/1/04,
Aaa 2,255 M.B.I.A.............. 1,343,010
Episcopal Hlth. Svcs.,
7.55%, 8/1/29,
AAA* 3,000 G.N.M.A.............. 3,225,720
Insured Mount Sinai Med. School,
5.00%, 7/1/13, Ser.
Aaa 2,945 A.................... 2,674,708
Long Island Med. Ctr.,
F.H.A.,
7.625%, 8/15/08, Ser.
Aa 2,595 A.................... 2,797,254
7.75%, 8/15/27, Ser.
Aa 4,100 A.................... 4,404,179
Menorah Campus,
7.40%, 2/1/31,
AA* 3,000 F.H.A................ 3,236,970
New York University,
Aaa 1,500 6.00%, 7/1/15.......... 1,501,785
Spec. Act. Sch.
Districts,
7.00%, 7/1/13,
Aaa 3,050 F.G.I.C.............. 3,256,302
St. Univ. Edl. Facs.,
5.50%, 5/15/08, Ser.
Baa1 500 A.................... 460,635
5.25%, 5/15/15, Ser. A,
Aaa 2,200 A.M.B.A.C............ 2,015,244
7.25%, 5/15/15, Ser. B,
Aaa 2,500 F.G.I.C.............. 2,787,725
7.25%, 5/15/18, Ser.
Baa1 1,770D A.................... 2,011,322
6.25%, 5/15/20, Ser.
Baa1 3,000 B.................... 2,943,630
University of Rochester
Strong Mem. Hosp.,
Aaa 5,000 5.90%, 7/1/17.......... 4,896,250
New York St. Energy
Resch. & Dev. Auth.
Rev.,
Brooklyn Union Gas
Co.,
7.125%, 12/1/20, Ser.
A1 5,225 1.................... 5,371,875
6.75%, 2/1/24,
Aaa 2,000 M.B.I.A.............. 2,074,580
5.856%, 7/8/26, Ser. D,
Aaa 2,000 M.B.I.A.............. 1,637,500
New York St. Energy
Resch. & Dev. Auth.
Rev.,
Con. Edison Co.,
Aaa $ 9,025 5.25%, 8/15/20......... $ 7,944,346
Aa2 6,735 7.50%, 7/1/25.......... 7,020,833
Aa2 4,775 7.50%, 1/1/26.......... 4,992,883
New York St. Environ. Facs. Corp.,
Occidental Pet. Corp. Proj.,
Baa3 2,000 5.70%, 9/1/28.......... 1,722,500
Poll. Ctrl. Rev.,
St. Wtr. Revolving
Fund,
7.50%, 3/15/11, Ser.
Aaa 1,300 B.................... 1,399,268
Aa 2,000 5.875%, 6/15/14........ 1,949,140
6.50%, 6/15/14, Ser.
Aa 1,000 E.................... 1,019,750
New York St. Hsg. Fin. Agcy. Rev.,
Multifamily Hsg.,
7.05%, 8/15/24, Ser.
Aa 1,000 A.................... 1,035,520
St. Univ. Constr.,
8.10%, 11/1/10, Ser.
Aaa 1,000D A.................... 1,124,860
8.00%, 5/1/11, Ser.
Aaa 3,600@ A.................... 4,334,148
Svc. Contract,
7.375%, 9/15/21, Ser.
Aaa 2,000D A.................... 2,288,100
New York St. Local
Gov't.
Assistance Corp.,
Zero Coupon, 4/1/14,
A 10,000 Ser. C............... 3,088,200
5.25%, 4/1/16, Ser.
A 4,500 E.................... 4,036,950
5.375%, 4/1/16, Ser.
A 5,000 B.................... 4,556,150
5.00%, 4/1/21, Ser.
A 5,250 E.................... 4,464,022
6.25%, 4/1/21, Ser.
A 2,000 B.................... 1,999,840
New York St. Med. Care Facs.
Fin. Agcy. Rev.,
Booth, Silvercrest & Kings
Brook Hosp.,
7.60%, 2/15/29, Ser. A,
Aa 2,750 F.H.A. 2,945,553
Buffalo Gen. Hosp. &
Nursing Home,
7.60%, 2/15/08, Ser. C,
Aa 2,000D F.H.A. 2,206,700
Ellis & Ira Davenport Hosp.,
8.00%, 2/15/28, Ser. B,
A* 1,495D F.H.A. 1,642,347
F.U.C. Insured Mtge.,
Ser. A,
Aaa 3,000 6.50%, 8/15/29......... 3,064,920
Good Samaritian Hosp., F.H.A.,
7.625%, 2/15/23, Ser.
Aa 3,500 A.................... 3,750,390
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
New York St. Med. Care Facs.
Fin. Agcy. Rev.,
Hosp. & Nursing Home, F.H.A.,
8.625%, 2/15/06, Ser.
Aa $ 1,495 C.................... $ 1,529,295
7.70%, 2/15/25, Ser.
Aa 1,000D A.................... 1,140,420
Long Island Coll. Hosp., F.H.A.,
8.00%, 2/15/08, Ser.
AA* 3,000D B.................... 3,318,720
8.50%, 1/15/22, Ser.
AAA* 4,000 A.................... 4,225,760
Mental Hlth. Svcs.,
5.375%, 2/15/14,
Aaa 5,000 A.M.B.A.C............ 4,654,100
5.25%, 2/15/19, Ser.
Baa1 7,250 F.................... 6,148,798
5.90%, 8/15/22,
Aaa 1,620 F.G.I.C.............. 1,579,127
Mental Hlth. Svcs.,
Ser. A,
Aaa 2,185D 7.50%, 8/15/07......... 2,475,561
Baa1 815 7.50%, 8/15/07......... 877,592
Aaa 365D 7.75%, 8/15/11......... 418,783
Baa1 135 7.75%, 8/15/11......... 146,676
Aaa 3,135D 7.50%, 2/15/21......... 3,551,892
St. Francis Hosp.,
F.G.I.C.,
7.60%, 11/1/08, Proj.
Aaa 2,350 A,................... 2,577,621
New York St. Mtge. Agcy. Rev.,
Homeowner Mtge.,
Aa 3,145@ 8.05%, 10/1/21......... 3,351,627
New York St. Mun. Bond Bank
Agcy., Spec. Proj. Rev.,
6.75%, 3/15/11, Ser.
A+* 3,000 A.................... 3,140,460
New York St. Thrwy.
Auth. Gen. Rev.,
5.75%, 1/1/19,
Aaa 4,000 M.B.I.A.............. 3,824,840
New York St. Thrwy.
Auth. Svc. Contract
Rev.,
Local Highway &
Bridge,
Baa1 1,485 5.875%, 4/1/14......... 1,398,113
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs.,
Baa1 10,000 Zero Coupon, 1/1/08.... 4,326,400
Baa1 3,250 5.75%, 1/1/13.......... 3,035,045
Baa1 2,960 5.25%, 1/1/21.......... 2,499,483
Niagara Falls Bridge
Comn.,
Toll Bridge Sys.
Rev.,
5.25%, 10/1/21,
Aaa 2,350 F.G.I.C.............. 2,085,837
Niagara Frontier Trans.
Auth. Arpt. Rev.,
Greater Buffalo Intl.
Arpt.,
6.125%, 4/1/14,
Aaa $ 2,700 A.M.B.A.C............ $ 2,707,344
Port Auth. of New York
& New Jersey,
7.25%, 8/1/25, Ser.
A1 1,000 70................... 1,062,910
A1 3,000 5.375%, 3/1/28......... 2,680,800
Puerto Rico Comnwlth.,
Gen. Oblig.,
7.00%, 7/1/10,
Aaa 6,500 A.M.B.A.C............ 7,398,950
Pub. Impvt. Ref.,
Aaa 1,250 7.00%, 7/1/10.......... 1,422,875
Puerto Rico Hsg. Fin. Auth. Rev.,
Single Family,
Baa 2,000 5.25%, 12/1/06......... 1,825,640
Puerto Rico Ind.
Tourist Ed. Hosp.,
Auxilio Mutuo Oblig.,
Grp. A,
6.25%, 7/1/24,
Aaa 3,000 M.B.I.A.............. 3,070,290
Puerto Rico Tel. Auth.
Rev.,
6.064%, 1/25/07, Ser.
Aaa 7,875 I, M.B.I.A........... 7,530,469
Suffolk Cnty. Ind. Dev.
Agcy.,
Southwest Swr. Sys.
Rev., F.G.I.C.,
Aaa 1,000 6.00%, 2/1/07.......... 1,042,350
Aaa 1,000 4.75%, 2/1/09.......... 886,540
Suffolk Cnty. Wtr.
Auth.,
Waterworks Rev.,
6.00%, 6/1/09,
Aaa 5,160 M.B.I.A.............. 5,334,615
5.00%, 6/1/17,
Aaa 250 M.B.I.A.............. 219,765
5.25%, 6/1/17, Ser. A,
Aaa 1,110D A.M.B.A.C............ 1,109,900
Triborough Bridge &
Tunl. Auth. Rev.,
7.50%, 1/1/15, Ser.
Aaa 2,035D M.................... 2,214,711
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund,
BBB* 2,500 7.70%, 10/1/04......... 2,697,900
7.25%, 10/1/18, Ser.
NR 2,550 A.................... 2,633,283
------------
Total long-term
investments
(cost
$305,666,607)........ 322,850,267
------------
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--2.1%
New York City Hsg. Dev. Corp.,
E. 17th St. Property,
3.60%, 3/1/95, Ser.
A-1* $ 1,900 93A, F.R.D.D......... $ 1,900,000
New York St. Energy Resh. &
Dev. Auth. Rev.,
Niagara Mohawk Pwr. Corp.,
3.75%, 3/1/95, Ser.
P1 5,100 86A, F.R.D.D......... 5,100,000
------------
Total short-term
investments
(cost $7,000,000).... 7,000,000
------------
Total Investments--101.1%
(cost $312,666,607;
Note 4).............. 329,850,267
Liabilities in excess
of other
assets--(1.1%)....... (3,655,332)
------------
Net Assets--100%....... $326,194,935
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of such security is considered to be
the later of the next date on which the security
can be redeemed at par or the next date on which
the rate of interest is adjusted.
* Standard & Poor's rating.
** Issuer in default, non-income producing security.
@ Pledged as initial margin on financial futures
contracts.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of Moody's and Standard & Poor's ratings.
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
February 28,
Assets
1995
----------------
<S>
<C>
Investments, at value (cost
$312,666,607)............................................... $329,850,267
Cash.........................................................................
........... 47,092
Interest
receivable.....................................................................
4,018,577
Receivable for investments
sold......................................................... 1,077,028
Receivable for Fund shares
sold......................................................... 476,210
Due from broker - variation
margin...................................................... 10,562
Prepaid expenses and other
assets....................................................... 7,156
----------------
Total
assets..........................................................................
335,486,892
----------------
Liabilities
Payable for investments
purchased.......................................................
8,425,396
Payable for Fund shares
reacquired......................................................
467,041
Dividends
payable.......................................................................
120,387
Management fee
payable..................................................................
110,905
Distribution fee
payable................................................................
85,300
Accrued expenses and other
liabilities.................................................. 81,628
Deferred trustee's
fees.................................................................
1,300
----------------
Total
liabilities.....................................................................
9,291,957
----------------
Net
Assets.......................................................................
....... $326,194,935
----------------
----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................. $ 278,812
Paid-in capital in excess of
par...................................................... 313,521,357
----------------
313,800,169
Accumulated net realized loss on
investments.......................................... (4,853,144)
Net unrealized appreciation on
investments............................................ 17,247,910
----------------
Net assets, February 28,
1995......................................................... $326,194,935
----------------
----------------
Class A:
Net asset value and redemption price per share
($156,085,586 / 13,343,034 shares of beneficial interest issued and
outstanding).... $11.70
Maximum sales charge (3.0% of offering
price)......................................... .36
----------------
Maximum offering price to
public...................................................... $12.06
----------------
----------------
Class B:
Net asset value, offering price and redemption price per share
($169,763,369 / 14,508,587 shares of beneficial interest issued and
outstanding).... $11.70
----------------
----------------
Class C:
Net asset value, offering price and redemption price per share
($345,980 / 29,569 shares of beneficial interest issued and
outstanding)............ $11.70
----------------
----------------
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February
28,
Net Investment Income 1995
-----------
<S> <C>
Income
Interest and discount earned......... $10,570,049
-----------
Expenses
Management fee (net of fee waiver of
$25,685)........................... 774,471
Distribution fee--Class A............ 14,815
Distribution fee--Class B............ 725,443
Distribution fee--Class C............ 957
Transfer agent's fees and expenses... 97,000
Custodian's fees and expenses........ 44,000
Registration fees.................... 32,000
Reports to shareholders.............. 23,000
Legal fees........................... 15,000
Insurance expense.................... 6,000
Audit fee............................ 5,300
Trustees' fees....................... 1,600
Miscellaneous........................ 5,050
-----------
Total expenses..................... 1,744,636
-----------
Net investment income.................. 8,825,413
-----------
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on:
Investment transactions.............. (4,168,126)
Financial futures transactions....... (112,414)
-----------
(4,280,540)
-----------
Net change in unrealized appreciation
on:
Investments.......................... 2,969,972
Financial futures contracts.......... 59,406
-----------
3,029,378
-----------
Net loss on investments................ (1,251,162)
-----------
Net Increase in Net Assets Resulting
from Operations........................ $ 7,574,251
-----------
-----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment
income............... $ 8,825,413 $ 18,454,581
Net realized loss on
investment
transactions......... (4,280,540) (16,054)
Net change in
unrealized
appreciation of
investments.......... 3,029,378 (25,211,565)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations........... 7,574,251 (6,773,038)
------------ ------------
Dividends from net
investment income (Note
1)
Class A.............. (930,329) (734,832)
Class B.............. (7,888,238) (17,719,575)
Class C.............. (6,846) (174)
------------ ------------
(8,825,413) (18,454,581)
------------ ------------
Series share transactions
(net
of share conversions)
(Note 5)
Net proceeds from
shares sold.......... 9,163,254 41,684,512
Net asset value of
shares issued in
reinvestment of
dividends............ 5,203,949 11,015,273
Cost of shares
reacquired........... (32,705,798) (52,115,672)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions......... (18,338,595) 584,113
------------ ------------
Total decrease........... (19,589,757) (24,643,506)
Net Assets
Beginning of period...... 345,784,692 370,428,198
------------ ------------
End of period............ $326,194,935 $345,784,692
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-11-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The New York Series (the ``Series'') commenced
investment operations in September, 1984. The Series is diversified and seeks
to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state and city income taxes with the minimum
of risk by investing in ``investment grade'' tax-exempt securities and whose
ratings are within the four highest ratings categories by a nationally
recognized statistical rating organization or, if not rated, are of comparable
quality. The ability of the issuers of the securities held by the Series to meet
their obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees), and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
-12-
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$25,685 ($0.001 per share). The Series is not required to reimburse PMF for such
waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $67,800 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $457,300 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $66,200 for the services of PMFS. As of August 31, 1994,
approximately $11,500 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $84,346,393 and $97,034,901, respectively.
The cost basis of investments for federal income tax purposes at February 28,
1995 was $312,694,807 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $17,155,460 (gross unrealized
appreciation--$21,189,784, gross unrealized depreciation--$4,034,324).
For federal income tax purposes, the Series had a capital loss carryforward
as of August 31, 1994 of approximately $15,700 which expires in 1999.
Accordingly, no capital gains distributions are expected to be paid to
shareholders until net gains have been realized in excess of such carryforward.
The Series will elect to treat net capital losses of approximately $531,600
incurred in the ten month period ended August 31, 1994 as having occurred in the
current fiscal year.
At February 28, 1995, the Series bought 26 financial futures contracts on the
Municipal Bond Index expiring in March, 1995. The value at trade date of such
contracts was $2,293,625. The value of such contracts on February 28, 1995 was
$2,357,875, thereby resulting in an unrealized gain of $64,250.
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent
-13-
<PAGE>
deferred sales charge which declines from 5% to zero depending on the period of
time the shares are held. Class C shares are sold with a contingent deferred
sales charge of 1% during the first year. Commencing in February, 1995, Class
B
shares automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six months ended
February 28, 1995 and the year ended August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
<S> <C> <C>
----------- ------------
Six months ended February
28, 1995:
Shares sold.................. 125,498 $ 1,421,293
Shares issued in reinvestment
of dividends............... 43,906 504,914
Shares reacquired............ (211,837) (2,389,141)
----------- ------------
Net decrease in shares out-
standing before
conversion................. (43,433) (462,934)
Shares issued upon conversion
from Class B............... 12,218,708 140,515,062
----------- ------------
Net increase in shares
outstanding................ 12,176,275 $140,052,128
----------- ------------
----------- ------------
Year ended August 31, 1994:
Shares sold.................. 568,443 $ 6,979,928
Shares issued in reinvestment
of dividends............... 34,634 419,800
Shares reacquired............ (379,015) (4,536,278)
----------- ------------
Net increase in shares
outstanding................ 224,062 $ 2,863,450
----------- ------------
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
<S> <C> <C>
----------- -------------
Six months ended February
28, 1995:
Shares sold................. 667,909 $ 7,552,596
Shares issued in
reinvestment of
dividends................. 417,615 4,693,795
Shares reacquired........... (2,702,914) (30,316,650)
----------- -------------
Net decrease in shares out-
standing before
conversion................ (1,617,390) (18,070,259)
Shares reacquired upon con-
version into Class A...... (12,218,708) (140,515,062)
----------- -------------
Net decrease in shares
outstanding............... (13,836,098) $(158,585,321)
----------- -------------
----------- -------------
Year ended August 31, 1994:
Shares sold................. 2,819,758 $ 34,553,962
Shares issued in
reinvestment of
dividends................. 873,809 10,595,424
Shares reacquired........... (3,939,794) (47,570,423)
----------- -------------
Net decrease in shares
outstanding............... (246,227) $ (2,421,037)
----------- -------------
----------- -------------
<CAPTION>
Class C
<S> <C> <C>
Six months ended February
28, 1995:
Shares sold................. 16,976 $ 189,365
Shares issued in
reinvestment of
dividends................. 465 5,240
Shares reacquired........... (1) (7)
----------- -------------
Net increase in shares
outstanding............... 17,440 $ 194,598
----------- -------------
----------- -------------
August 1, 1994* through
August 31, 1994:
Shares sold................. 12,897 $ 150,622
Shares issued in
reinvestment of
dividends................. 4 49
Shares reacquired........... (772) (8,971)
----------- -------------
Net increase in shares
outstanding............... 12,129 $ 141,700
----------- -------------
----------- -------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-14-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class
A
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C>
January 22,
Six Months
1990D
Ended Year Ended
August 31, Through
February 28,
- ----------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
------------ ------- -------
------ ------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.71 $ 12.54 $ 11.75
$11.08 $10.62 $10.81
------------ ------- -------
------ ------ ------------
Income from investment operations
Net investment income............... .34** .67 .70
.71 .72 .42
Net realized and unrealized gain
(loss) on investment
transactions...................... (.01) (.83) .79
.67 .46 (.19)
------------ ------- -------
------ ------ ------------
Total from investment
operations...................... .33 (.16) 1.49
1.38 1.18 .23
Less dividends
Dividends from net investment
income............................ (.34) (.67) (.70)
(.71) (.72) (.42)
------------ ------- -------
------ ------ ------------
Net asset value, end of period...... $ 11.70 $ 11.71 $ 12.54
$11.75 $11.08 $10.62
------------ ------- -------
------ ------ ------------
------------ ------- -------
------ ------ ------------
TOTAL RETURN#:...................... 2.92% (1.38)% 13.06%
12.73% 11.49% 2.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 156,086 $13,661 $11,821
$6,057 $2,729 $1,174
Average net assets (000)............ $ 28,876 $13,454 $ 8,755
$4,024 $1,579 $ 588
Ratios to average net assets:
Expenses, including distribution
fees............................ .73%*/** .74% .74%
.74% .71% .78%*
Expenses, excluding distribution
fees............................ .63%*/** .64% .64%
.64% .61% .68%*
Net investment income............. 5.90%*/** 5.46% 5.78%
6.19% 6.61% 6.41%*
Portfolio turnover.................. 27% 49% 44%
45% 78% 127%
</TABLE>
- ---------------
* Annualized.
** Net of fee waiver.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends. Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-15-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class B
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
<C> <C> <C>
Six Months
Ended
Year Ended August 31,
February 28,
- ------------------------------------------------------------
1995 1994 1993
1992 1991 1990
------------ -------- --------
-------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.71 $ 12.54 $ 11.75
$ 11.08 $ 10.62 $ 10.88
------------ -------- --------
-------- -------- --------
Income from investment operations
Net investment income............... .31** .62 .65
.66 .67 .65
Net realized and unrealized gain
(loss) on investment
transactions...................... (.01) (.83) .79
.67 .46 (.26)
------------ -------- --------
-------- -------- --------
Total from investment
operations...................... .30 (.21) 1.44
1.33 1.13 .39
Less dividends
Dividends from net investment
income............................ (.31) (.62)
(.65) (.66) (.67) (.65)
------------ -------- --------
-------- -------- --------
Net asset value, end of period...... $ 11.70 $ 11.71 $ 12.54
$ 11.75 $ 11.08 $ 10.62
------------ -------- --------
-------- -------- --------
------------ -------- --------
-------- -------- --------
TOTAL RETURN#:...................... 2.71% (1.77)%
12.61% 12.32% 10.96% 3.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 169,763 $331,982 $358,607
$316,472 $293,942 $313,606
Average net assets (000)............ $ 292,582 $350,564 $330,823
$303,016 $295,285 $332,580
Ratios to average net assets:
Expenses, including distribution
fees............................ 1.13%*/** 1.14%
1.14% 1.14% 1.11% 1.17%
Expenses, excluding distribution
fees............................ .63%*/** .64%
.64% .64% .61% .67%
Net investment income............. 5.50%*/** 5.06%
5.38% 5.79% 6.21% 6.10%
Portfolio turnover.................. 27% 49%
44% 45% 78% 127%
<CAPTION>
Class C
---------------------------
<S> <C> <C>
August 1,
Six Months 1994D
Ended Through
February 28, August 31,
1995 1994
------------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $11.71 $11.74
------------ ----------
Income from investment operations
Net investment income............... .30** .04
Net realized and unrealized gain
(loss) on investment
transactions...................... (.01) (.03)
------------ ----------
Total from investment
operations...................... .29 .01
Less dividends
Dividends from net investment
income............................ (.30) (.04)
------------ ----------
Net asset value, end of period...... $11.70 $11.71
------------ ----------
------------ ----------
TOTAL RETURN#:...................... 2.61% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 346 $ 142
Average net assets (000)............ $ 257 $ 42
Ratios to average net assets:
Expenses, including distribution
fees............................ 1.38%*/** 1.62%*
Expenses, excluding distribution
fees............................ .63%*/** .87%*
Net investment income............. 5.25%*/** 5.17%*
Portfolio turnover.................. 27% 49%
</TABLE>
- ---------------
* Annualized.
** Net of fee waiver.
D Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends. Total returns for periods of less than a full year are not
annualized.
See Notes to Financial Statements.
-16-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport PlazaNew York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M747
74435M754 MF122E2
74435M523 (LOGO) Cat. #6423327
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- ----------------------------------
(ICON)
New York
Money Market Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
Over the past six months, the Federal Reserve has been busy raising short-term
interest rates, which had a positive effect on both the taxable and tax-exempt
money markets. We are pleased to report that the yield on your Prudential
Municipal Series Fund -- New York Money Market Series increased nearly 110
basis points to 3.3% from 2.2%, finishing in line with the 3.4% Donoghue
New York tax-exempt fund average, which tracks 37 New York tax-exempt
money funds.
<TABLE>
SERIES' PERFORMANCE
As of February 28, 1995
<CAPTION>
7-Day
Weighted
Net Current Tax Equivalent Yield Average
Assets (mil.) Yield @31% @36% @39.6%
Maturity
<S> <C> <C> <C> <C> <C> <C>
New York Money
Market Series $306 3.3% 5.2% 5.6% 6.0% 60 days
Donoghue New York
Tax-Exempt Funds* N/A 3.4% 5.3% 5.7% 6.0% 42 days
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee of future results. An investment in the Series is neither insured
nor guaranteed by the U.S. government and there can be no assurance that the
Series will be able to maintain a stable net asset value.
* Donoghue returns as of 2/27/95.
Fund Overview.
Your New York Money Market Series seeks to provide the highest level of income
which is exempt from federal, New York state and New York City income taxes,
while maintaining a stable net asset value of $1 per share. The Series
invests primarily in high quality, short-term, tax-exempt New York state,
municipal and local bonds and bonds from other qualifying issuers. There
can be no assurance that the Series' investment objective will be achieved.
The Federal Reserve Tightens.
The U.S. economy grew in 1994 at the robust annual rate approximating 4%, a
stronger rate than many had anticipated as the year began. Three million
new jobs were created during the year and consumer confidence was at a
-1-
<PAGE>
four-year high. Fearing that this dramatic growth would increase inflation,
the Federal Reserve started to increase short-term interest rates. By
February 1995, the central bank had increased the federal funds rate (the
interbank overnight lending rate) seven times, doubling the rate to 6% from
3% in a year.
There were some indications in late February that the Federal Reserve was
having some success in slowing economic growth. Inflation remains below 3%,
with no signs of rising anytime soon. Commodities prices (one precursor of
inflation) have traded within an acceptable range throughout the year, while
wages (another leading indicator) have stayed flat. With economic growth
slowing, we don't expect wage and price pressures to develop any time soon.
Rising Rates Were Beneficial.
Rising rates were good news for the New York Money Market Series. The Series'
seven-day current yield on February 28, 1995 stood at 3.3%, or about 110 basis
points (a basis point is 1/100 of a percentage point) higher than the 2.2%
recorded on August 31, 1994. A New York state resident in the 39.6% federal
tax bracket would have to have earned about 6.0% from a taxable investment
to match this return and nearly 6.3%, if he or she also lived in New
York City.
The Series, anticipating that interest rates would rise, maintained a shorter
weighted average maturity (WAM) to take advantage of higher rates. After the
central bank moved, we selectively extended the maturity of the portfolio. As
of February 28, 1995, WAM stood at 60 days, compared to 42 days for the
Donoghue average.
On the Hill:
In 1995, Congress will most likely consider an
initiative that would restore full income tax
deductibility for individual retirement account
(IRA) contributions for middle-income wage earners.
In addition, Congress may also consider the creation
of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual
Funds supports both of these proposals, and we urge
you to share your opinion with your Congressional
representatives. We will keep you updated on these
initiatives as they make their way through the
legislative process.
New Governor, New Challenges.
New York has a new governor who faces the same old problems of revenue
flow vs. expenditures. The state has a projected budget deficit of nearly
$6 billion in the new fiscal year, as a result, significant spending cuts
will be necessary. A prime target for these cuts may be Medicaid which
accounts for more than 20% of state expenditures. Governor George Pataki's
game plan to close the budget gap may have a bearing on the state's bond
rating.
Bargains were hard to come by over the past six months because of a lack
of supply of quality New York issues. In fact, this shortage required us
to take a sizeable position in floating-rate securities whose interest
rates reset daily or weekly. We held as much as 68% of assets in "floaters"
on January 14, 1995. Over the past two months we have replaced a portion of
these holdings with high quality securities in the six-month to one-year range.
We believe this structure allows us to take advantage of the best of both
worlds. When interest rates are rising, this system permits the Series to
realize higher interest rates on the floating rate securities. Of course,
when interest rates fall, the yields on floaters will fall too. But the
effect upon the Series'
-2-
<PAGE>
yield will be cushioned somewhat by the higher yields of the longer-term,
money market securities held in the portfolio. The floaters also provide
the Series with additional liquidity to take advantage of new issues as
they come to market.
Seasonal Factors Affect The Municipal Market, Too.
While rising interest rates in the taxable market affects the tax-free
market, it takes time before the full impact is felt. In addition, the
municipal market is more sensitive to seasonal supply and demand factors
that cause volatility in short-term, tax-exempt rates.
For example, 7-day securities in the national tax-exempt market at the end
of December yielded almost 6% on an annualized basis, as people withdrew
money for holiday spending. This drove the supply of short-term bonds up,
prices down and yields higher. The reverse occurred by mid January as
assets flowed again into tax-exempt funds lowering yields to 3%. There
are other times when this seasonal factor occurs, such as in April when
income taxes are due and investors liquidate a portion of their money market
positions to pay their tax bills.
The Outlook.
We believe 1995 should be a positive year for money market investors
highlighted by moderate U.S. economic growth at a rate that is manageable.
Inflation may edge up a bit, but an increase has already been discounted
by the markets.
As always, it is a pleasure to work for you. We are pleased to be able to
report this news to you and thank you for the confidence you have shown in
us by choosing the Prudential Municipal Series Fund -- New York Money Market
Series.
Sincerely,
Lawrence C. McQuade
President
Colleen Meehan
Portfolio Manager
-3-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
NEW YORK MONEY MARKET SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
SHORT-TERM INVESTMENTS--100.8%
Amherst Ind. Dev. Agcy.
Rev.,
Gen. Accident Ins.,
3.90%, 5/1/95, Ser. 85,
A-1+* $ 3,100 S.E.M.O.T............ $ 3,100,000
Babylon Ind. Dev. Agcy.
Rev.,
Res. Rec. Rev.,
3.85%, 3/1/95, Ser. 89,
A-1+* 12,500 F.R.D.D.............. 12,500,000
Babylon, Gen. Oblig.,
3.70%, 3/1/95, Ser.
VMIG1 4,700 94B, F.R.W.D......... 4,700,000
Erie Cnty., Gen.
Oblig.,
4.75%, 8/15/95,
MIG1 3,000 R.A.N................ 3,009,896
Franklinville Central
Sch. Dist.,
4.20%, 3/2/95, Ser 93,
NR 4,525 F.R.W.D.............. 4,525,000
Guilderland Ind. Dev.
Agcy. Rev.,
Northeastern Ind'l.
Park,
4.00%, 3/1/95, Ser.
P-1 1,500 93A, F.R.W.D......... 1,500,000
Islip Cnty., Gen.
Oblig.,
4.50%, 8/22/95, Ser.
NR 2,500 94, B.A.N............ 2,503,367
Monroe Cnty., Ind. Dev.
Agcy. Rev.,
Gen. Accident Ins.
Co.,
4.50%, 3/1/95, Ser. 84,
A-1+* 7,000 S.E.M.O.T............ 7,000,000
Granite Bldg.,
3.90%, 3/1/95, Ser. 92,
P-1 2,400 F.R.W.D.............. 2,400,000
Mt. Pleasant Ind. Dev.
Agcy. Rev., Poll.
Ctrl. Rev.,
Gen. Motors Corp.
Proj.,
3.90%, 3/7/95,
VMIG2 6,095 F.R.W.D.............. 6,095,000
Nassau Cnty., Gen.
Oblig., B.A.N.,
4.75%, 8/15/95, Ser.
MIG1 6,000 94E.................. 6,017,268
MIG1 4,000 5.00%, 8/15/95......... 4,012,459
Nassau Cnty., Ind. Dev.
Agcy. Rev.,
Cold Spring Harbor,
3.70%, 3/1/95, Ser. 89,
A-1+* $ 3,000 F.R.D.D.............. $ 3,000,000
New York City, Gen.
Oblig.,
3.70%, 3/1/95, Ser.
VMIG1 10,900 93D, F.R.D.D......... 10,900,000
3.90%, 3/1/95, Ser.
VMIG1 1,000 95B-4, F.R.D.D....... 1,000,000
Ser. 95B, R.A.N.,
4.063%, 3/1/95,
MIG1 5,000 F.R.W.I.N............ 5,000,000
4.183%, 3/1/95,
MIG1 6,900 F.R.M.I.N............ 6,900,000
New York City Hsg. Dev.
Corp.,
E.17th St. Property,
3.90%, 3/1/95, Ser.
A-1* 12,100 93A, F.R.D.D......... 12,099,999
James Tower Proj.,
3.95%, 3/1/95, Ser.
A-1* 4,300 94A, F.R.W.D......... 4,300,000
Related E. 96th St.
Proj.,
3.80%, 3/2/95, Ser.
VMIG1 13,500 90A, F.R.W.D......... 13,500,000
New York City Ind. Dev.
Agcy. Rev.,
Japan Airlines,
3.60%, 3/1/95, Ser. 91,
A-1+* 200 F.R.D.D.............. 200,000
Nat'l Audubon Society,
3.60%, 3/1/95, Ser. 89,
A-1+* 3,700 F.R.D.D.............. 3,700,000
Viola Bakeries,
4.10%, 3/1/95, Ser. 90,
VMIG1 2,650 F.R.W.D.............. 2,650,000
New York City Mun.,
Water Fin. Auth.,
Water & Sew. Rev.,
3.90%, 3/1/95, Ser.
VMIG1 8,100 93C, F.R.D.D......... 8,100,000
Water Fin. Auth.,
4.05%, 5/9/95,
P-1 5,000 T.E.C.P.............. 5,000,000
</TABLE>
-4- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
New York City Trust for
Cultural Research,
Carnegie Hall,
4.10%, 3/1/95, Ser. 85,
VMIG1 $ 3,075 F.R.W.D.............. $ 3,075,000
New York St. Dorm.
Auth. Rev.,
Highland Cmnty. Dev.,
3.80%, 3/1/95, Ser.
VMIG1 670 94A, F.R.W.D......... 670,000
Miriam Osborn Memorial
Home,
3.80%, 3/1/95,
VMIG1 4,700 F.R.W.D.............. 4,700,000
Rockefeller Univ.,
4.36%, 3/1/95, Ser.
Aaa 13,600 91A, F.R.W.D......... 13,600,000
St. Francis Center
at the Knolls,
3.60%, 3/1/95,
VMIG1 9,900 F.R.D.D.............. 9,900,000
New York St. Energy
Res. & Dev. Auth.,
Long Island Ltg. Co.
Proj.,
3.60%, 3/1/95, Ser.
VMIG1 7,500 85B, A.N.N.M.T....... 7,500,000
New York St. Elec. &
Gas Co.,
3.90%, 4/6/95, Ser.
A-1+* 2,300 94B, T.E.C.P......... 2,300,000
4.60%, 12/1/95, Ser.
A-1+* 4,000 84A, A.N.N.M.T....... 4,000,000
Niagara Mohawk Pwr.
Corp.,
4.00%, 3/1/95, Ser.
P-1 13,200 86A, F.R.D.D......... 13,200,000
Pollution Control Rev.,
4.10%, 10/15/95,
Ser. 85B,
Aaa 3,250 A.N.N.O.T............ 3,250,000
New York St., Gen.
Oblig.,
B.A.N.,
P-1 4,000 3.90%, 4/6/95.......... 4,000,000
3.95%, 3/8/95, Ser.
P-1 5,300 P.................... 5,300,000
4.00%, 4/7/95, Ser.
P-1 1,000 P.................... 1,000,000
4.05%, 4/7/95, Ser.
P-1 4,800 P.................... 4,800,000
New York St. Hsg. Fin.
Auth.,
Liberty View Apts.,
4.00%, 3/1/95, Ser.
VMIG1 $ 5,400 85A, F.R.W.D......... $ 5,400,000
New York St. Job Dev.
Auth., F.R.M.D.,
3.80%, 3/1/95, Ser.
VMIG1 1,655 84D.................. 1,655,000
3.80%, 3/1/95, Ser.
VMIG1 3,910 84E.................. 3,910,000
3.80%, 3/1/95, Ser.
VMIG1 1,525 84F.................. 1,525,000
3.90%, 3/1/95, Ser.
VMIG1 1,185 86C.................. 1,185,000
New York St. Power
Auth. Rev.,
4.40%, 3/1/95,
VMIG1 7,000 S.E.M.M.T............ 7,000,000
New York St. Urban Dev.
Corp. Rev.,
8.00%, 1/1/96, Ser.
Aaa 2,500 86................... 2,601,855
Niagara Cnty. Ind. Dev.
Agcy. Rev.,
Gen. Abrasive
Treibacher,
4.45%, 3/1/95, Ser. 91,
P-1 4,600 F.R.W.D.............. 4,600,000
Oswego Cnty. Ind. Dev.
Agcy.
Rev., Phillip Morris
Co.,
3.95%, 3/1/95, Ser. 92,
P-1 6,300 F.R.W.D.............. 6,300,000
Oyster Bay, Gen.
Oblig.,
Ser. 94, B.A.N.,
NR 2,000 4.85%, 12/8/95......... 1,998,188
NR 3,000 5.00%, 12/8/95......... 3,001,718
Port Auth. of New York
& New Jersey,
3.90%, 3/10/95, Ser.
P-1 1,725 86A, T.E.C.P......... 1,725,000
Kiac Partners,
F.R.W.D.,
3.95%, 3/1/95, Ser.
VMIG1 6,200 3-2.................. 6,200,000
3.95%, 3/1/95, Ser.
VMIG1 4,500 3-3.................. 4,500,000
Spec. Oblig. Rev.,
3.896%, 3/7/95, Ser.
NR 12,000 93-1, F.R.W.D........ 12,000,000
Sayville Union Free
Sch. Dist.,
4.50%, 6/8/95,
MIG1 3,800 B.A.N................ 3,807,948
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description (a) (Note 1)
<C> <C> <S> <C>
Sayville Union Free
Sch. Dist.,
Suffolk Cnty.,
4.15%, 6/28/95, Ser.
MIG1 $ 5,000 A360, T.A.N.......... $ 5,000,788
Smithtown Central Sch.
Dist.,
4.00%, 6/23/95,
MIG1 8,440 T.A.N................ 8,444,999
St. Lawrence Cnty. Ind.
Dev. Agcy. Rev.,
Clarkson Univ. Proj.,
4.20%, 3/2/95, Ser. 90,
VMIG1 2,700 F.R.W.D.............. 2,700,000
Reynolds Metals,
3.90%, 3/1/95,
P-1 1,000 F.R.D.D.............. 1,000,000
Syracuse,
4.00%, 6/16/95, B.A.N.,
NR 4,188 T.R.A.N.............. 4,192,706
Westchester Cnty.,
5.00%, 12/14/95,
NR 7,000 T.A.N................ 7,026,724
Yates Cnty. Ind. Dev.
Agcy. Rev.,
Clearplass Containers
Inc.,
4.05%, 3/2/95, Ser.
A-1* 1,575 92A, F.R.W.D......... 1,575,000
------------
Total Investments--100.8%
(amortized cost--
$308,357,915**)...... 308,357,915
Liabilities in excess
of other
assets--(0.8%)....... (2,537,181)
------------
Net Assets--100%....... $305,820,734
------------
------------
</TABLE>
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender.
A.N.N.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note #.
F.R.M.D.--Floating Rate (Monthly) Demand Note #.
F.R.M.I.N.--Floating Rate (Monthly) Index Note #.
F.R.W.D.--Floating Rate (Weekly) Demand Note #.
F.R.W.I.N.--Floating Rate (Weekly) Index Note #.
R.A.N.--Revenue Anticipation Note.
S.E.M.M.T.--Semi-Annual Mandatory Tender.
S.E.M.O.T.--Semi-Annual Optional Tender.
T.A.N.--Tax Anticipation Note.
T.E.C.P.--Tax-Exempt Commercial Paper.
T.R.A.N.--Tax Revenue Anticipation Note.
# For purposes of amortized cost valuation, the maturity date of such
securities is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
* Standard & Poor's rating.
** The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at amortized cost which approximates market
value......................... $ 308,357,915
Cash.........................................................................
.......... 4,926,289
Receivable for investments
sold........................................................ 13,368,658
Receivable for Series shares
sold...................................................... 4,597,011
Interest
receivable....................................................................
1,853,491
Deferred expenses and other
assets..................................................... 4,617
-----------------
Total
assets.......................................................................
333,107,981
-----------------
Liabilities
Payable for investments
purchased......................................................
21,500,000
Payable for Series shares
reacquired................................................... 5,479,246
Accrued expenses and other
liabilities................................................. 117,978
Management fee
payable.................................................................
114,955
Dividends
payable......................................................................
59,080
Distribution fee
payable...............................................................
14,688
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities..................................................................
27,287,247
-----------------
Net
Assets.......................................................................
...... $ 305,820,734
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value..................................... $ 3,058,207
Paid-in capital in excess of
par..................................................... 302,762,527
-----------------
Net assets, February 28,
1995........................................................ $ 305,820,734
-----------------
-----------------
Net asset value, offering price and redemption price per share ($305,820,734 /
305,820,734
shares of beneficial interest issued and outstanding; unlimited number of
shares
authorized)..................................................................
........ $1.00
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February 28,
Net Investment Income 1995
------------
<S> <C>
Income
Interest............................. $ 4,909,983
------------
Expenses
Management fee....................... 688,748
Distribution fee..................... 172,187
Transfer agent's fees and expenses... 68,000
Custodian's fees and expenses........ 40,000
Reports to shareholders.............. 20,000
Registration fees.................... 8,000
Audit fee............................ 5,300
Legal fees........................... 5,000
Insurance expense.................... 4,000
Trustees' fees....................... 1,600
Miscellaneous........................ 951
------------
Total expenses..................... 1,013,786
------------
Net investment income.................. 3,896,197
------------
Net Increase in Net Assets
Resulting from Operations.............. $ 3,896,197
------------
------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------- -------------
<S> <C> <C>
Operations
Net investment
income................. $ 3,896,197 $ 4,997,969
------------- -------------
Net increase in net
assets resulting from
operations........... 3,896,197 4,997,969
------------- -------------
Dividends to
shareholders........... (3,896,197) (4,997,969)
------------- -------------
Series share transactions
(at $1 per share)
Net proceeds from
shares sold.......... 543,093,072 956,452,031
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends............ 3,804,483 4,807,678
Cost of shares
reacquired............. (510,150,018) (978,490,262)
------------- -------------
Net increase (decrease)
in net assets from
Series share
transactions......... 36,747,537 (17,230,553)
------------- -------------
Total increase
(decrease)............. 36,747,537 (17,230,553)
Net Assets
Beginning of period...... 269,073,197 286,303,750
------------- -------------
End of period............ $ 305,820,734 $ 269,073,197
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-8-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The New York Money Market Series (the
``Series'') commenced investment operations in April, 1985. The Series is
diversified and seeks to achieve its investment objective of providing the
highest level of income that is exempt from New York State, New York City and
federal income taxes with a minimum of risk by investing in ``investment grade''
tax-exempt securities having a maturity of thirteen months or less whose ratings
are within the two highest ratings categories by two nationally recognized
statistical rating organizations, or if not rated, are of comparable quality.
The ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: Portfolio securities of the Series are valued at
amortized cost, which approximates market value. The amortized cost method of
valuation involves valuing a security at its cost on the date of purchase and
thereafter assuming a constant amortization to maturity of any discount or
premium.
All securities are valued as of 4:30 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
The Fund has a distribution agreement with Prudential Mutual Fund
Distributors, Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan of distribution, the Series pays PMFD a reimbursement,
accrued daily and payable monthly, at an annual rate of .125 of 1% of the
Series' average daily net assets. PMFD pays various broker-dealers, including
Prudential Securities Incorporated (``PSI'') and Pruco Securities Corporation,
affiliated broker-dealers, for account servicing fees and other expenses
incurred by such broker-dealers.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $63,000 for the services of PMFS. As of February 28, 1995,
approximately $11,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
-9-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended August 31,
February 28,
- ---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1995 1994
1993 1992 1991 1990
------------ --------
- -------- -------- -------- --------
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period............ $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized gains.... .01 .02
.02 .03 .04 .05
Dividends and distributions to shareholders..... (.01) (.02)
(.02) (.03) (.04) (.05)
------------ --------
- -------- -------- -------- --------
Net asset value, end of period.................. $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ --------
- -------- -------- -------- --------
------------ --------
- -------- -------- -------- --------
TOTAL RETURN#:.................................. 1.41% 1.80%
1.80% 2.93% 4.37% 5.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 305,821 $269,073
$286,304 $249,785 $236,361 $226,758
Average net assets (000)........................ $ 277,782 $280,492
$275,640 $248,557 $245,494 $218,423
Ratios to average net assets:
Expenses, including distribution fee.......... .74%* .77%
.75% .76% .79% .75%
Expenses, excluding distribution fee.......... .61%* .64%
.63% .63% .66% .62%
Net investment income......................... 2.83%* 1.78%
1.75% 2.83% 4.23% 4.99%
</TABLE>
- ---------------
# Total return includes reinvestment of dividends and distributions. Total
return for periods of less than one year are not annualized.
* Annualized.
See Notes to Financial Statements.
-10-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Mutual Fund Distributors, Inc.
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M721 MF127E2
(LOGO) Cat. #642420A
SEMI-ANNUAL REPORT February 28, 1995
Prudential
Municipal Series Fund
(ICON)
North Carolina Series
(LOGO)
<PAGE>
Letter to
Shareholders
--------------------------------------------------------
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this winter,
as interest rates of long-term municipal bonds fell and newly-issued tax-exempt
bonds became scarce. We are pleased to report that your Prudential Municipal
Series Fund -- North Carolina Series has earned a positive total return,
performing in line with the average North Carolina municipal bond fund as
measured by Lipper Analytical Services, Inc.
Less Means More...For You!
Prudential mutual fund shareholders will be seeing total returns increase in the
months to come, thanks to a reduction in Fund management expenses. Prudential
Mutual Funds lowered the rate on January 1, 1995, to 0.45% from 0.50%. It is
our way of showing you that we appreciate your business and that we remain
committedto managing the Fund for your benefit.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 3.0% 1.2% 42.0% N/A 42.9%
Class B 2.8% 0.7% 39.2% 115.3% 109.5%
Class C 2.7% N/A N/A N/A 1.7%
Lipper NC
Muni. Avg3 2.8% 0.30% 7.08% 8.29% 8.23%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 3.1% 6.8% N/A 6.6%
Class B 1.0% 6.9% 7.9% 7.6%
Class C N/A N/A N/A 2.4%
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical Services,
Inc. The cumulative total returns do not take into account sales charges. The
average annual returns do take into account applicable sales charges. The
Series charges a maximum front-end sales load of 3% for Class A shares. Class
B
shares are subject to a contingent deferred sales charge of 5%, 4%, 3%, 2%, 1%
and 1% for six years. Class C shares have a 1% CDSC for one year. Class B
shares will automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 Class A; 2/13/85, Class B; 8/1/94 Class C.
3Lipper average returns are for 27 funds for six months, 26 funds for one year,
5 funds for five years, 2 funds for 10 years, and 2 funds since inception of
Class B shares on 2/13/85.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from North Carolina state and federal
income taxes consistent with preservation of capital. Certain shareholders may
be subject to the federal alternative minimum tax, however. The Series will
invest primarily in North Carolina state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and Guam), the income from which is also exempt from federal and
North Carolina state income taxes.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds rate
(the interbank overnight lending rate), investors began to believe that the
economy was showing signs of slowing. As a result, long-term interest rates in
the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though the
Federal Reserve raised short-term rates again on February 1, 1995. In fact, on
March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its lowest since
last June. That's more than a full percentage point below its 1994 high -- 7.4%
recorded on November 17, 1994.
On the Hill...
In 1995, Congress will most likely consider an initiative that would restore
full income tax deductibility for individual retirement account (IRA)
contributions for middle-income wage earners. In addition, Congress may also
consider the creation of a new tax-deferred savings account called the "American
Dream Savings Account." Prudential Mutual Funds supports both of these
proposals, and we urge you to share your opinion with your Congressional
representatives. We will keep you updated on these initiatives as they make
their way through the legislative process.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset values
by maintaining a balance between bonds with higher coupons and those with lower
coupons, sometimes called premium and discount bonds. The higher yielding
premium bonds help cushion the impact of rising interest rates while the lower
coupon or discount bonds offer price appreciation potential when interest rates
decline.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a scarcity
of new supply. Last year's higher interest rates made many issuers reluctant
to
borrow money. In fact, the Revenue Bond Index rose dramatically to 6.9% from
5.5% -- nearly one and a half percentage points. As a result, the level of new
bonds issued nationwide fell by 44% and in North Carolina by 65%. Only $2.2
million in bonds were sold in the state last year, a significant drop from
$6.3 million the year before.
-2-
<PAGE>
North Carolina: An Economic Success Story.
North Carolina ranks among the top 10 states in economic growth. Unemployment
fell in December 1994 to 3.3%, the lowest of the industrialized states. Its
economic base of manufacturing textiles and furniture and tobacco and tourism
has diversified in recent years with the growth of financial services, research
and high tech in the Research Triangle area.
The state holds the highest credit ratings possible from the major rating
agencies as a result of its strong history of conservative budget practices and
steady economic growth. North Carolina ended Fiscal 1994 with a surplus of
nearly $890 million. Fiscal 1995 should similarly end with a healthy surplus,
since expenditure growth and revenue assumptions are conservative.
Fund Update
Starting in February 1995, Class B shareholders may have begun to notice a
change in their Fund holdings. That's when Class B shares began to
automatically convert to Class A shares, on a quarterly basis, approximately
seven years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly, after
conversion you will earn higher total returns on your investment than you would
have as a Class B shareholder.
Following the May cycle, conversions of eligible Class B shares and special
exchanges of Class B and C shares will take place each calendar quarter
(March, June, September and December) starting in September 1995.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact, the
Lehman Brothers Municipal Bond Index increased 2.8% over the last six months in
total return. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as investors
continue to gain confidence that the Federal Reserve is satisfied that it has
inflation under control. In addition, we believe the supply of tax-exempt
municipals will continue to contract, which should also provide an additional
reward to investors by supporting prices.
As always, it is a pleasure to work for you. We thank you for remaining with
the Prudential Municipal Series Fund -- North Carolina Series through a most
difficult 1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Marie Conti
Portfolio Manager
-3-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the bond
market -- in taxable or tax-exempt securities -- you might want to consider
some of the following points. We talked with Prudential Mutual Funds
chief fixed income strategist Dennis Bushe about why bonds and bond
mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest
rate minus the inflation rate) are still very high historically.
According to Ibbotson Associates, a nationally recognized investment
analysis firm, the annual inflation-adjusted return on bonds from 1926 to
1994 was between 2.5% and 3.0%. Today's investors receive over 4.5% in total
inflation-adjusted, annualized total return. Of course, these numbers are
just for illustration, but they show how much higher interest rates improve
bond total returns when inflation is only 2.7%, as measured by the Consumer
Price Index. And beating inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of
course you can avoid virtually all credit risk in a government bond
fund, but some investors need higher income than Uncle Sam provides.
Bond funds help manage both this risk, and that may be especially important
in 1995. First of all, if the U.S. economy is beginning to slow down, as many
economists believe, then credit quality is a concern. A credit team becomes
very valuable, carefully selecting bonds in different sectors and industries
for bond portfolios. In addition, few individual investors have the resources
or clout to continually monitor companies, unearth possible credit problems
before they surface, and negotiate favorable terms with troubled issuers--a
bond fund does. Finally, the diversification of a bond fund may help investors
avoid wide price swings if one holding does experience financial difficulties.
-4-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
NORTH CAROLINA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--96.1%
Buncombe Cnty.,
Pub. Impvt. Bonds,
Aa $ 1,000D 6.90%, 3/1/09........... $ 1,084,260
Charlotte Cert. of
Part.,
Conv. Fac. Proj.,
A.M.B.A.C.,
Aaa 3,000 Zero Coupon, 12/1/09.... 1,255,530
Charlotte Mecklenberg
Hosp.,
Hlthcare Sys. Rev.,
Aa 750 6.25%, 1/1/20........... 755,985
Charlotte Wtr. & Swr.,
Aaa 1,500 6.20%, 6/1/17........... 1,553,865
Aaa 1,000 5.90%, 2/1/19........... 1,003,770
Cleveland Cnty.,
F.G.I.C.,
5.10%, 6/1/07, Ser.
Aaa 2,500 1993.................. 2,411,425
Coastal Regl. Mgmt.
Auth.,
Solid Waste Sys.,
A 2,000 6.50%, 6/1/08........... 2,088,020
Dare Cnty., Util. Sys.
Rev.,
5.75%, 6/1/14,
Aaa 500 M.B.I.A............... 492,505
Durham Cert. of Part.,
Morgan St. Garage Proj.,
AAA* 500D 8.00%, 7/1/06........... 544,400
Durham Cnty., Pub.
Impvt.,
Aaa 2,000 4.60%, 5/1/04........... 1,881,140
Fayetteville, Cert. of
Part.,
San. Swr. & Pub. Impvt.,
A1 250 7.10%, 5/1/07........... 273,308
6.875%, 12/1/08,
AAA* 1,750 A.M.B.A.C............. 1,866,882
Gastonia, Gen. Oblig.,
Wtr. Sys. & St. Impvt.,
5.25%, 4/1/09,
Aaa 1,625 F.G.I.C............... 1,548,674
Guilford Cnty., Pub.
Impvt.,
Aa1 1,500 5.40%, 4/1/09........... 1,465,230
Martin Cnty. Ind. Facs.
& Poll.
Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co.
Proj.,
A2 200 8.50%, 6/15/99.......... 222,092
Mecklenberg Cnty., Pub.
Impvt.,
Aaa $ 1,000 5.00%, 4/1/08........... $ 951,920
New Hanover Cnty. Hosp.
Rev.,
Regl. Med. Ctr. Proj.,
4.75%, 10/1/23,
Aaa 1,600 A.M.B.A.C............. 1,300,112
No. Carolina Eastn. Mun.
Pwr. Agcy.,
Pwr. Sys. Rev.,
Aaa 1,995 6.50%, 1/1/18, E.T.M.... 2,100,057
A 1,005 6.50%, 1/1/18........... 983,825
A 1,000 6.40%, 1/1/21........... 953,840
7.625%, 1/1/22, Ser. A,
Aaa 1,000D A.M.B.A.C............. 1,089,900
Aaa 650D 6.00%, 1/1/26........... 652,528
A 400 6.00%, 1/1/26........... 363,156
No. Carolina Edl. Facs.
Fin.
Agcy. Rev.,
Davidson Coll. Proj.,
8.10%, 12/1/12, Ser.
AAA* 1,000D A..................... 1,076,380
No. Carolina Hsg. Fin.
Agcy.,
Multi-family Mtge. Rev.,
F.H.A.,
8.875%, 7/1/08, Ser.
Aa 40 C..................... 41,223
Aa 245 9.75%, 7/1/20, Ser. A... 252,962
Rex Hosp. Proj.,
A1 1,750 6.25%, 6/1/17........... 1,752,380
Sngl. Fam. Mtge. Rev.,
Aa 860 7.80%, 3/1/21, Ser. G... 907,661
No. Carolina Med. Care
Comn.,
Hlth. Care Facs. Rev.,
Stanley Mem. Hosp.
Proj.,
Baa1 650 7.80%, 10/1/19.......... 680,153
No. Carolina Med. Care
Comn., Hosp. Rev.,
Annie Pen Mem. Hosp.
Proj.,
Baa 1,000 7.50%, 8/15/21.......... 1,014,250
Baptist Hosp. Proj.,
Aa 1,000 6.00%, 6/1/22........... 981,470
Carolina Medicorp Proj.,
7.875%, 5/1/15, Ser.
Aaa 750D A..................... 811,185
Aa 1,500 6.00%, 5/1/21........... 1,474,560
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Duke Univ. Hosp. Proj.,
8.625%, 6/1/10, Ser.
Aa $ 595D 85A................... $ 611,523
Mem. Mission Hosp. Inc.
Proj.,
A1 800 9.10%, 10/1/08.......... 832,104
Mercy Hosp. Proj.,
9.625%, 8/1/15, Ser.
AAA* 670D 85.................... 698,281
Scotland Mem. Hosp.,
8.625%, 10/1/11, Ser.
Baa 1,000D 88.................... 1,136,630
No. Carolina Mun. Pwr.
Agcy.,
No. 1 Catawba Elec.
Rev.,
A 1,000 5.25%, 1/1/09........... 927,400
6.00%, 1/1/10,
Aaa 1,250 M.B.I.A............... 1,282,037
5.47%, 1/1/12,
Aaa 2,000DD M.B.I.A............... 1,757,500
7.625%, 1/1/14,
Aaa 615D A.M.B.A.C............. 670,289
7.625%, 1/1/14,
Aaa 135 A.M.B.A.C............. 144,565
Aaa 760D 8.50%, 1/1/17, Ser. B... 800,212
Aaa 920D 7.00%, 1/1/18........... 948,106
A 80 7.00%, 1/1/18........... 81,419
Northern Hosp. Dist.
Surry Cnty.
Hlth. Care Facs. Rev.,
No. Carolina Hosp.,
Aaa 700D 9.75%, 10/1/12.......... 735,770
Ba1 1,500 7.875%, 10/1/21......... 1,566,795
Piedmont Triad Arpt.
Auth.,
5.00%, 7/1/16,
Aaa 1,000 M.B.I.A............... 879,340
Puerto Rico Aqueduct &
Swr.
Auth. Rev.,
7.875%, 7/1/17, Ser.
Baa 2,000 A..................... 2,191,780
Puerto Rico Comnwlth.,
Baa1 1,240 6.25%, 7/1/10, Ser. A... 1,250,776
5.50%, 7/1/13,
Aaa 1,750 M.B.I.A............... 1,692,950
7.382%, 7/1/20,
Aaa 1,300DD F.S.A................. 1,241,500
Puerto Rico Hsg. Fin.
Corp.,
Bank & Fin. Agcy.,
Baa 1,000 5.125%, 12/1/05......... 911,270
Puerto Rico Hsg. Fin.
Corp.,
Sngl. Fam. Mtge. Rev.,
7.80%, 10/15/21, Ser. A,
Aaa $ 150 G.N.M.A............... $ 157,494
7.65%, 10/15/22, Ser.
Aaa 690 1-B, G.N.M.A.......... 735,568
Puerto Rico Ind. Med. &
Environ.
Poll. Ctrl. Facs.,
Upjohn Co. Proj.,
Aa3 500 7.50%, 12/1/23.......... 540,370
Puerto Rico Tel. Auth.
Rev.,
Ser. I, M.B.I.A.,
Aaa 1,000DD 6.064%, 1/25/07......... 956,250
Robeson Cnty.,
Aaa 500D 7.80%, 6/1/09........... 551,500
Union Cnty. Wtr. & Swr.,
Solid Waste Rev.,
A1 850 6.50%, 4/1/07........... 903,371
Univ. of No. Carolina at
Chapel
Hill, Pkg. Sys. Rev.,
Ser. B,
A1 850 6.80%, 6/1/06........... 906,176
Virgin Islands Pub. Fin.
Auth. Rev.,
Hwy. Trans. Trust Fund,
NR 1,050 7.50%, 10/1/96.......... 1,087,821
7.25%, 10/1/18, Ser.
NR 700 A..................... 722,862
Virgin Islands Terr.,
Hugo Ins. Claims Fund
Prog.,
7.75%, 10/1/06, Ser.
NR 440 91.................... 471,412
Wake Cnty. Hosp. Rev.,
5.125%, 10/1/26,
Aaa 1,500 M.B.I.A............... 1,307,340
Winston Salem,
Sngl. Fam. Mtge. Rev.,
A1 445 8.00%, 9/1/07........... 467,183
-----------
Total long-term
investments
(cost $63,496,289)...... 65,002,242
-----------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
<TABLE>
<CAPTION>
Value
Description(a) (Note 1)
<C> <C> <S> <C>
Total Investments--96.1%
(cost $63,496,289; Note
4).................... $65,002,242
Other assets in excess
of
liabilities--3.9%..... 2,612,980
-----------
Net Assets--100%........ $67,615,222
-----------
-----------
</TABLE>
- ------------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
E.T.M..--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Association.
F.H.A.--Federal Housing Administration.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
* Standard & Poor's Rating.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate. The
rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$63,496,289)............................................... $65,002,242
Cash.........................................................................
.......... 1,734,667
Interest
receivable....................................................................
1,126,109
Receivable for Fund shares
sold........................................................ 110,729
Receivable for investments
sold........................................................ 30,000
Deferred expenses and other
assets..................................................... 1,381
-----------------
Total
assets.........................................................................
68,005,128
-----------------
Liabilities
Payable for Fund shares
reacquired..................................................... 321,011
Dividends
payable......................................................................
25,079
Due to
Manager.........................................................................
23,035
Due to
Distributors....................................................................
19,481
Deferred Trustees'
fees................................................................
1,300
-----------------
Total
liabilities....................................................................
389,906
-----------------
Net
Assets.......................................................................
...... $67,615,222
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 61,077
Paid-in capital in excess of
par..................................................... 66,120,433
-----------------
66,181,510
Accumulated net realized loss on
investments......................................... (72,241)
Net unrealized appreciation on
investments........................................... 1,505,953
-----------------
Net assets, February 28,
1995........................................................ $67,615,222
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($24,926,452 / 2,252,357 shares of beneficial interest issued and
outstanding)..... $11.07
Maximum sales charge (3% of offering
price).......................................... .34
-----------------
Maximum offering price to
public..................................................... $11.41
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($42,660,287 / 3,852,745 shares of beneficial interest issued and
outstanding)..... $11.07
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($28,483 / 2,572 shares of beneficial interest issued and
outstanding)............. $11.07
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February
28,
Net Investment Income 1995
----------
<S> <C>
Income
Interest.............................. $2,227,237
----------
Expenses
Management fee, net waiver of
$5,320................................ 160,575
Distribution fee--Class A............. 2,430
Distribution fee--Class B............. 153,718
Distribution fee--Class C............. 41
Custodian's fees and expenses......... 40,000
Transfer agent's fees and expenses.... 22,500
Reports to shareholders............... 15,000
Registration fees..................... 14,000
Audit fee............................. 5,300
Legal fees............................ 5,000
Trustees Fees......................... 1,600
Miscellaneous......................... 5,149
----------
Total expenses...................... 425,313
----------
Net investment income................... 1,801,924
----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............... 114,960
Financial futures contract
transactions.......................... (9,331)
----------
105,629
----------
Net change in unrealized
appreciation/depreciation on:
Investments........................... (266,218)
Financial futures contract............ (10,000)
----------
(276,218)
----------
Net loss on investments................. (170,589)
----------
Net Increase in Net Assets
Resulting from Operations............... $1,631,335
----------
----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) in February 28, August 31,
Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income... $ 1,801,924 $ 3,711,296
Net realized gain on
investment
transactions.......... 105,629 276,064
Net change in unrealized
appreciation/depreciation
of investments........ (276,218) (5,436,522)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ 1,631,335 (1,449,162)
------------ ------------
Dividends and
distributions (Note 1):
Dividends from net
investment income
Class A............... (148,238) (109,844)
Class B............... (1,653,402) (3,601,431)
Class C............... (284) (21)
------------ ------------
(1,801,924) (3,711,296)
------------ ------------
Distributions from net
realized gains
Class A............... -- (33,123)
Class B............... -- (1,379,190)
------------ ------------
-- (1,412,313)
------------ ------------
Series share transactions
(net of share
conversions) (Note 5)
Net proceeds from shares
sold.................. 2,203,895 9,251,532
Net asset value of
shares issued in
reinvestment of
dividends and
distributions......... 931,632 2,641,848
Cost of shares
reacquired.............. (7,063,423) (10,898,454)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions.......... (3,927,896) 994,926
------------ ------------
Total decrease............ (4,098,485) (5,577,845)
Net Assets
Beginning of period....... 71,713,707 77,291,552
------------ ------------
End of period............. $ 67,615,222 $ 71,713,707
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The North Carolina Series (the ``Series'')
commenced investment operations in February, 1985. The Series is diversified and
seeks to achieve its investment objective of obtaining the maximum amount of
income exempt from federal and applicable state income taxes with the minimum
of
risk by investing in ``investment grade'' tax-exempt securities whose ratings
are within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic or political developments in a specific
state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss until the contracts expire or are closed, at which time
the gain or loss is reclassified to realized gain or loss. The Series invests
in
financial futures contracts solely for the purpose of hedging its existing
portfolio securities, or securities the Series intends to purchase against
fluctuations in value caused by changes in prevailing market conditions. Should
market conditions move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which
-10-
<PAGE>
<PAGE>
may differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for short-term capital gains and market
discount.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the services of PIC,
the cost of compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$5,320 ($0.001 per share for Class A, B and C shares; .008% of average net
assets). The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $9,400 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $60,800 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Prudential Mutual Fund
SerNote 3. Other
vices, Inc. (``PMFS''), a Transactions
wholly-owned subsidiary of with Affiliates
PMF, serves as the Fund's transfer agent and
during the six months ended February 28, 1995, the Series incurred fees of
approximately $14,000 for the services of PMFS. As of February 28, 1995,
approximately $2,400 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations include certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $2,941,878 and $8,571,412, respectively.
The cost basis of investments for federal income tax purposes is
substantially the same as for financial reporting purposes and, accordingly, as
of February 28, 1995, net unrealized appreciation for federal income tax
purposes was $1,505,953 (gross unrealized appreciation--$2,608,956; gross
unrealized depreciation--$1,103,003).
The Fund elected to treat net capital losses of approximately $107,146
incurred in the ten month period ended August 31, 1994 as having incurred in the
current fiscal year.
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase commencing in or about February 1995.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six months ended
February 28, 1995 and the fiscal year ended August 31, 1994, were as follows:
-11-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------
<S> <C> <C>
---------- ------------
Six months ended
February 28, 1995:
Shares sold..................... 48,070 $ 513,512
Shares issued in reinvestment of
dividends..................... 7,745 83,826
Shares reacquired............... (51,165) (555,344)
---------- ------------
Net increase in shares
outstanding before
conversion.................... 4,650 41,994
Shares issued upon convesion
from Class B.................. 2,043,687 22,296,713
---------- ------------
Net increase in shares
outstanding................... 2,048,337 $ 22,338,707
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold..................... 81,115 $ 947,875
Shares issued in reinvestment of
dividends and distributions... 8,558 98,262
Shares reacquired............... (33,172) (382,692)
---------- ------------
Net increase in shares
outstanding................... 56,501 $ 663,445
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- --------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold..................... 156,726 $ 1,672,666
Shares issued in reinvestment of
dividends..................... 79,939 847,550
Shares reacquired............... (619,025) (6,508,079)
---------- ------------
Net decrease in shares
outstanding before
conversion.................... (382,360) (3,987,863)
Shares reacquired upon
conversion into Class A....... (2,043,687) (22,296,713)
---------- ------------
Net decrease in shares
outstanding................... (2,426,047) $(26,284,576)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold..................... 711,751 $ 8,293,464
Shares issued in reinvestment of
dividends and distributions... 220,668 2,543,573
Shares reacquired............... (920,864) (10,515,762)
---------- ------------
Net increase in shares
outstanding................... 11,555 $ 321,275
---------- ------------
---------- ------------
<CAPTION>
Class C
- --------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold..................... 1,623 $ 17,717
Shares issued in reinvestment of
dividends..................... 24 256
---------- ------------
Net increase in shares
outstanding................... 1,647 $ 17,973
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold..................... 924 $ 10,193
Shares issued in reinvestment of
dividends..................... 1 13
---------- ------------
Net increase in shares
outstanding................... 925 $ 10,206
---------- ------------
---------- ------------
- ------------------
* Commencement of offering of Class C shares.
</TABLE>
-12-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year Ended
August 31, through
February 28,
- --------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------ ------
------ ------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.06 $12.04 $11.37
$10.86 $10.45 $10.63
------------ ------ ------
------ ------ ------------
Income from investment operations
Net investment income.................. .31 .61 .65
.67 .67 .41
Net realized and unrealized gain (loss)
on investment transactions........... .01 (.76) .67
.51 .41 (.18)
------------ ------ ------
------ ------ ------------
Total from investment operations..... .32 (.15) 1.32
1.18 1.08 .23
------------ ------ ------
------ ------ ------------
Less distributions
Dividends from net investment income... (.31) (.61) (.65)
(.67) (.67) (.41)
Distributions from net realized
gains................................ -- (.22) --
-- -- --
------------ ------ ------
------ ------ ------------
Total distributions.................. (.31) (.83) (.65)
(.67) (.67) (.41)
------------ ------ ------
------ ------ ------------
Net asset value, end of period......... $ 11.07 $11.06 $12.04
$11.37 $10.86 $10.45
------------ ------ ------
------ ------ ------------
------------ ------ ------
------ ------ ------------
TOTAL RETURN#.......................... 3.07% (1.35)% 11.99%
11.12% 10.63% 2.09%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $24,926 $2,256 $1,777
$917 $362 $58
Average net assets (000)............... $ 4,900 $2,067 $1,316
$612 $246 $32
Ratios to average net assets:
Expenses, including distribution
fees............................... .91%*@ .88% .87%
.91% .99% 1.00%*
Expenses, excluding distribution
fees............................... .81%*@ .78% .77%
.81% .89% .90%*
Net investment income................ 6.10%*@ 5.31% 5.55%
5.90% 6.24% 6.24%*
Portfolio turnover..................... 5% 17% 38%
36% 27% 24%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and
includes reinvestment of dividends and distributions. Total
returns for periods of less than a full year are not annualized.
@ Net of management fee waiver.
See Notes to Financial Statements.
-13-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class C
Class
B ------------
- ------------------------------------------------------------------------
Six Months
Six Months
Ended
Year Ended August 31, Ended
February 28,
- ------------------------------------------------------- February 28,
1995 1994 1993
1992 1991 1990 1995
<S> <C> <C> <C>
<C> <C> <C> <C>
------------ ------- -------
------- ------- ------- ---------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.06 $ 12.05 $ 11.37
$ 10.86 $ 10.45 $ 10.65 $11.06
------------ ------- -------
------- ------- ------- ---------
Income from investment operations
Net investment income.................. .29 .56 .60
.62 .63 .64 .28
Net realized and unrealized gain (loss)
on investment transactions........... .01 (.77) .68
.51 .41 (.20) .01
------------ ------- -------
------- ------- ------- ---------
Total from investment operations..... .30 (.21) 1.28
1.13 1.04 .44 .29
------------ ------- -------
------- ------- ------- ---------
Less distributions
Dividends from net investment income... (.29) (.56) (.60)
(.62) (.63) (.64) (.28)
Distributions from net realized
gains................................ -- (.22) --
-- -- -- --
------------ ------- -------
------- ------- ------- ---------
Total distributions.................. (.29) (.78) (.60)
(.62) (.63) (.64) (.28)
------------ ------- -------
------- ------- ------- ---------
Net asset value, end of period......... $ 11.07 $ 11.06 $ 12.05
$ 11.37 $ 10.86 $ 10.45 $11.07
------------ ------- -------
------- ------- ------- ---------
------------ ------- -------
------- ------- ------- ---------
TOTAL RETURN#:......................... 2.87% (1.82)% 11.62%
10.64% 10.17% 4.28% 2.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $42,660 $69,448 $75,515
$63,573 $59,875 $57,429 $28
Average net assets (000)............... $61,997 $73,606 $67,997
$60,751 $59,071 $56,745 $11
Ratios to average net assets:##
Expenses, including distribution
fees............................... 1.31%*@ 1.28% 1.27%
1.31% 1.39% 1.38% 1.56%*@
Expenses, excluding distribution
fees............................... .81%*@ .78% .77%
.81% .89% .89% .81%*@
Net investment income................ 5.38%*@ 4.89% 5.18%
5.58% 5.88% 5.96% 5.24%*@
Portfolio turnover..................... 5% 17% 38%
36% 27% 24% 5%
<CAPTION>
August 1,
1994DD
through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $11.09
----------
Income from investment operations
Net investment income.................. .04
Net realized and unrealized gain (loss)
on investment transactions........... (.03)
----------
Total from investment operations..... .01
----------
Less distributions
Dividends from net investment income... (.04)
Distributions from net realized
gains................................ --
----------
Total distributions.................. (.04)
----------
Net asset value, end of period......... $11.06
----------
----------
TOTAL RETURN#:......................... .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $10
Average net assets (000)............... $5
Ratios to average net assets:##
Expenses, including distribution
fees............................... 1.67%*
Expenses, excluding distribution
fees............................... .92%*
Net investment income................ 5.06%*
Portfolio turnover..................... 17%
</TABLE>
See Notes to Financial Statements.
-14-
<PAGE>
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M812
74435M820 MF126E2
74435M515 (LOGO) Cat. #642963Q
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- --------------------------
(ICON)
Ohio Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued tax-exempt bonds became scarce. We are pleased to report that
your Prudential Municipal Series Fund -- Ohio Series earned a positive total
return. This finish was behind the average Ohio municipal bond fund as
measured by Lipper Analytical Services, Inc., because the Series held bonds
with a shorter maturity range. Our defensive position benefited the Series
in early March, when interest rates suddenly rose.
Less Means More...
For You!
Prudential mutual fund shareholders will be
seeing total returns increase in the months
to come, thanks to a reduction in Fund
management expenses. Prudential Mutual Funds
lowered the rate on January 1, 1995, to 0.45%
from 0.50%. It is our way of showing you that
we appreciate your business and that we remain
committed to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C> <C>
Class A 2.7% 1.7% 44.9% N/A 45.9%
Class B 2.4% 1.3% 42.2% 119.2% 129.0%
Class C 2.3% N/A N/A N/A 2.5%
Lipper OH
Muni. Avg3 2.7% 1.1% 44.7% 132.0% 144.0%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 3.1% 7.2% N/A 7.1%
Class B 0.9% 7.3% 8.2% 8.3%
Class C N/A N/A N/A 2.2%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1 Source: Prudential Mutual Fund Management, Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3%
for Class A shares. Class B shares are subject to a contingent deferred
sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares
have a 1% CDSC for one year. Class B shares will automatically convert
to Class A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 9/20/84, Class B; 8/1/94 Class C.
3Lipper average returns are for 44 funds for six months, 38 funds for one
year, 15 funds for five years, 2 funds for 10 years, and 2 funds since
inception of Class B shares on 9/20/84.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Ohio state and federal income
taxes consistent with the preservation of capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. The Series
will invest primarily in Ohio state, municipal and local government obligations
and obligations of U.S. territories (such as Puerto Rico, the U.S. Virgin
Islands and Guam), the income of which is also exempt from federal and Ohio
income taxes.
On the Hill...
In 1995, Congress will most likely consider an
initiative that would restore full income tax
deductibility for individual retirement account
(IRA) contributions for middle-income wage earners.
In addition, Congress may also consider the creation
of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential Mutual
Funds supports both of these proposals, and we urge
you to share your opinion with your Congressional
representatives. We will keep you updated on these
initiatives as they make their way through the
legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you, the
tax-exempt bond market was in turmoil because interest rates were rising
sharply, and prices (which move in the opposite direction of interest rates)
were falling sharply.
Volatility escalated last year when the Federal Reserve started to increase
short-term interest rates in a pre-emptive strike against inflation. By
November, after the Federal Reserve's sixth increase in the federal funds
rate (the interbank overnight lending rate), investors began to believe
that the economy was showing signs of slowing. As a result, long-term
interest rates in the tax-exempt bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even though
the Federal Reserve raised short-term rates again on February 1, 1995. In
fact, on March 2, the Bond Buyer's Revenue Bond Index sank to 6.3% -- its
lowest since last June. That's more than a full percentage point below
its 1994 high -- 7.4% recorded on November 17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize asset
values by maintaining a balance between bonds with higher coupons and those
with lower coupons, sometimes called premium and discount bonds. The
higher yielding premium bonds help cushion the impact of rising interest
rates while the lower coupon or discount bonds offer price appreciation
potential when interest rates decline.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently by a
scarcity of new supply. Last year's higher interest rates made many
issuers reluctant to borrow money. In fact, the Revenue Bond Index rose
dramatically to 6.9% from 5.5% -- nearly one and a half percentage points.
As a result, the level of new bonds issued nationwide fell by 44% and in
Ohio by 32%.
-2-
<PAGE>
Over the past six months, the Series has added A-rated hospital bonds that
have been priced inexpensively. In addition, we have been trying to increase
the Series' yield by holding no more than 65% of assets in AA-rated bonds
or better. There is very little supply and high demand for Ohio's tax-exempt
municipal bonds. As a result, the Series has purchased obligations of Puerto
Rico and Guam.
Ohio: Restructuring Economy.
Ohio has been restructuring its economy, once dominated by manufacturing,
auto-related goods, non-electrical machinery and steel. The state created
149,000 new jobs in 1994, sharply reducing its unemployment rate in December
to 4.3%, down from 6.3% in December, 1993. Many of these new jobs are in
the service and trade industries.
The state's 1994-95 biennial budget anticipates moderate increases in spending
fueled by 1992 tax increases. As of June 30, 1994, there was a $336 million
balance. The governor plans no new taxes in the next budget, and some
spending cuts.
A Tax Reminder...
As a result of the Revenue Reconciliation Act
of 1993, it is possible that this year you
may have some taxable income from your normally
tax-exempt municipal bond fund. The law stipulates
that the portion of any gain realized on the sale
or retirement of a tax-exempt bond purchased at a
market discount to its face value may be taxed as
ordinary income. The law affects bonds purchased
after April 30, 1993.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In fact,
the Lehman Brothers Municipal Bond Index has increased 2.8% over the last six
months. That is a substantial relief to investors who weathered sharply
rising interest rates and falling bond prices in 1994.
We expect long-term interest rates to stabilize in the year ahead, as
investors continue to gain confidence that the Federal Reserve is satisfied
that it has inflation under control. In addition, we expect the supply of
tax-exempt municipals to continue to contract, which should also provide an
additional reward to investors by supporting prices.
-3-
<PAGE>
Fund Update
Starting in February 1995, Class B shareholders
may have begun to notice a change in their Fund
holdings. That's when Class B shares began to
automatically convert to Class A shares, on a
quarterly basis, approximately seven years after
purchase. As you may know, Class A shares generally
carry lower annual distribution expenses than
Class B shares. Accordingly, after conversion
you will earn higher total returns on your investment
than you would have as a Class B shareholder.
Following the May cycle, conversions of eligible
Class B shares and special exchanges of Class B
and C shares will take place each calendar quarter
(March, June, September and December) starting in
September 1995.
As always, it is a pleasure to work for you. We thank you for remaining with
the Prudential Municipal Series Fund -- Ohio Series through a most difficult
1994. We appreciate the confidence you have shown in us.
Sincerely,
Lawrence C. McQuade
President
Christian Smith
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that rising
interest rates would erode their returns and add volatility to their
investment portfolio. If you are contemplating putting cash into the
bond market -- in taxable or tax-exempt securities -- you might want to
consider some of the following points. We talked with Prudential Mutual
Funds chief fixed income strategist Dennis Bushe about why bonds and bond
mutual funds may make sense in today's investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates at very
attractive levels in 1995. Second, real rates of return (the interest rate
minus the inflation rate) are still very high historically. According to
Ibbotson Associates, a nationally recognized investment analysis firm, the
annual inflation-adjusted return on bonds from 1926 to 1994 was between 2.5%
and 3.0%. Today's investors receive over 4.5% in total inflation-adjusted,
annualized total return. Of course, these numbers are just for illustration,
but they show how much higher interest rates improve bond total returns when
inflation is only 2.7%, as measured by the Consumer Price Index. And beating
inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality. Of course
you can avoid virtually all credit risk in a government bond fund, but some
investors need higher income than Uncle Sam provides. Bond funds help manage
this risk, and that may be especially important in 1995. First of all, if the
U.S. economy is beginning to slow down, as many economists believe, then
credit quality is a concern. A credit team becomes very valuable, carefully
selecting bonds in different sectors and industries for bond portfolios. In
addition, few individual investors have the resources or clout to continually
monitor companies, unearth possible credit problems before they surface, and
negotiate favorable terms with troubled issuers -- a bond fund does. Finally,
the diversification of a bond fund may help investors avoid wide price swings
if one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
OHIO SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.2%
Akron, Bath & Copley Twnshps.,
Hosp. Dist. Rev.,
Summa Health Systems Proj.,
5.75%, 11/15/08, Ser.
A $ 3,465 A.................... $ 3,340,537
Akron, Gen. Oblig.,
A 200 10.50%, 12/1/04........ 275,626
4.50%, 12/1/12,
Aaa 645 F.S.A................ 538,885
Allen Cnty. Wtr. & Swr.
Dist.,
7.80%, 12/1/08,
Aaa 1,000 A.M.B.A.C............ 1,113,170
Bellefontaine City Sch.
Dist., A.M.B.A.C.,
Aaa 495 Zero Coupon, 12/1/06... 257,380
Aaa 485 Zero Coupon, 12/1/07... 235,889
Aaa 485 Zero Coupon, 12/1/08... 220,268
Aaa 390 Zero Coupon, 12/1/09... 165,103
Aaa 390 Zero Coupon, 12/1/10... 153,629
Aaa 465 Zero Coupon, 12/1/11... 172,096
Berea City Sch. Dist.,
5.00%, 12/15/17,
Aaa 4,375 A.M.B.A.C. 3,904,600
Canton,
Waterworks Sys.,
Gen. Oblig.,
Aaa 700 5.85%, 12/1/15......... 693,287
Carroll Cnty. Econ.
Dev. Rev.,
Great Trail Lake
Ctr.,
11.75%, 8/1/14,
NR 685 F.H.A................ 777,763
Cleveland City Sch.
Dist., Gen. Oblig.,
Sch. Impvt.,
Ser. B, F.G.I.C.,
Aaa 490 Zero Coupon, 6/1/05.... 279,447
Aaa 400 Zero Coupon, 6/1/06.... 213,848
Aaa 315 Zero Coupon, 6/1/07.... 157,595
Aaa 550 Zero Coupon, 12/1/08... 249,788
Columbus Citation Hsg.
Dev. Corp., Mtge.
Rev.,
7.625%, 1/1/22,
NR 1,885D F.H.A................ 2,206,958
Columbus, Gen. Oblig.,
Mun. Arpt. No. 32,
Aa1 $ 435 7.15%, 7/15/06......... $ 469,752
Swr. Impvt. No. 26,
Aa1 2,000 6.00%, 9/15/09......... 2,034,500
Cuyahoga Cnty. Hosp.
Rev.,
Meridia Health Sys.,
A1 1,500 6.25%, 8/15/24......... 1,458,660
Dayton Arpt. Rev.,
James M. Cox Int'l.
Arpt.,
8.25%, 1/1/16,
Aaa 3,500 A.M.B.A.C............ 3,672,830
Dayton Wtr. Sys. Rev.,
Mtge. Ref.,
Aaa 600D 10.25%, 12/1/10........ 638,034
Dayton, Gen. Oblig.,
7.00%, 12/1/07,
Aaa 480 M.B.I.A.............. 546,283
Dublin City Sch. Dist.,
Franklin,
Delaware & Union Co.,
Zero Coupon, 12/1/05,
Aaa 1,000 A.M.B.A.C............ 554,900
East Cleveland Rev.,
Local
Gov't. Fund Notes,
NR 860 7.90%, 12/1/97......... 922,488
Franklin Cnty. Hosp.
Rev.,
A 1,550 5.875%, 12/1/13........ 1,408,237
Doctors Hosp. Rev.,
A 1,500 5.875%, 12/1/23........ 1,325,565
Holy Cross Hlth. Sys.,
7.65%, 6/1/10, Ser. B,
Aaa 2,500D A.M.B.A.C............ 2,828,850
Franklin Cnty.,
Aaa 1,690 5.375%, 12/1/20........ 1,548,040
Gahanna Jefferson City Sch.
Dist., Gen. Oblig.,
Zero Coupon, 12/1/09,
Aaa 445 A.M.B.A.C............ 188,386
Greene Cnty. Swr. Sys.
Rev.,
Zero Coupon, 12/1/08,
Aaa 450 A.M.B.A.C............ 204,372
Guam Pwr. Auth. Rev., Ser. A,
BBB* 3,110 6.75%, 10/1/24......... 3,140,851
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Hamilton Cnty. Elec.
Sys.
Mtge. Rev.,
8.00%, 10/15/22, Ser.
Aaa $ 3,000D B, F.G.I.C........... $ 3,352,740
Hamilton Cnty. Gas Sys.
Rev.,
4.75%, 10/15/23, Ser.
Aaa 3,750 A, M.B.I.A........... 3,090,150
Hamilton Cnty. Swr.
Sys. Rev., Met. Swr.
Dist. of Greater
Cincinnati,
9.50%, 12/1/05, Ser.
Aaa 500D A.................... 533,775
Logan Hocking Local
Sch. Dist., Hocking,
Perry & Vinton Co.,
Gen. Oblig.,
Zero Coupon, 12/1/09,
Aaa 650 A.M.B.A.C............ 275,561
Loveland City Sch.
Dist.,
Gen. Oblig.,
A* 3,000 7.10%, 12/1/09......... 3,263,280
Lucas Cnty. Hosp. Rev.,
Toledo Hosp., Impvt.
& Ref.,
M.B.I.A.,
Aaa 2,000 5.00%, 11/15/13........ 1,795,400
Aaa 4,250 5.00%, 11/15/22........ 3,678,842
Montgomery Cnty. Swr. Sys.
Rev., Greater Moraine,
Beaver Creek, F.G.I.C.,
Aaa 1,000 Zero Coupon, 9/1/05.... 562,550
Aaa 500 Zero Coupon, 9/1/07.... 246,645
Mount Vernon City Sch.
Dist.,
Gen. Oblig.,
F.G.I.C.,
Aaa 500 7.50%, 12/1/14......... 576,800
Aaa 1,000 5.85%, 12/1/19......... 987,010
Newark Ltd. Tax Gen.
Oblig.,
Wtr. Impvt.,
Zero Coupon, 12/1/06,
Aaa 805 A.M.B.A.C............ 418,568
Ohio St. Air Quality
Dev.
Auth. Rev.,
Poll. Ctrl., Edison
Proj.,
7.45%, 3/1/16, Ser. A,
Aaa 3,750 F.G.I.C.............. 4,071,862
Ohio St. Air Quality
Dev. Auth. Rev.,
Poll. Ctrl.,
Cleveland Co. Proj.,
8.00%, 12/1/13,
Aaa $ 2,500 F.G.I.C.............. $ 2,877,700
Ohio St. Bldg. Auth.,
Columbus St. Bldg.
Proj.,
7.75%, 10/1/07, Ser.
A 750D A.................... 829,028
Das Data Ctr. Proj.,
Aaa 615D 6.00%, 10/1/08......... 639,932
St. Correctional Facs.,
8.00%, 8/1/06, Ser.
Aaa 600 A.................... 661,182
A 2,450 5.90%, 10/1/07......... 2,500,053
8.00%, 8/1/08, Ser.
Aaa 500D A.................... 550,985
Workers Comp. - W.
Green Bldg. A,
A 2,175 4.75%, 4/1/14.......... 1,814,081
Ohio St. Higher Edl.
Fac. Comn. Rev.,
Case Western Resv.
Univ.,
7.70%, 10/1/18, Ser.
Aa 1,000 A.................... 1,078,890
6.50%, 10/1/20, Ser.
Aa 750 B.................... 811,072
Oberlin Coll.,
NR 1,000D 7.375%, 10/1/14........ 1,109,620
Aaa 500D 9.25%, 10/1/15......... 523,680
Univ. of Dayton Proj.,
5.80%, 12/1/19,
Aaa 750 F.G.I.C.............. 735,428
Ohio St. Mtge. Rev.,
8.15%, 8/1/17, Ser. A,
AAA* 3,500 F.H.A................ 3,803,030
Ohio St. Poll. Ctrl.
Rev.,
Standard Oil Co.,
A1 1,350 6.75%, 12/1/15......... 1,477,589
Ohio St. Univ., Gen.
Receipts,
5.875%, 12/1/12, Ser.
A1 3,750 A1................... 3,710,887
Ohio St. Wtr. Dev.
Auth. Rev.,
7.50%, 12/1/08, Ser.
Aaa 1,200D I.................... 1,312,872
5.50%, 12/1/11,
Aaa 915 A.M.B.A.C............ 889,545
Ottawa Cnty. San. Sew. Sys. Rev.,
Danbury Proj.,
7.375%, 10/1/14,
Aaa 1,000D A.M.B.A.C............ 1,110,930
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Oxford Hosp. Facs.
Rev.,
1st Mtge., McCullough
Hyde Mem.,
NR $ 1,445 8.00%, 5/1/17.......... $ 1,509,779
Pickerington Local Sch.
Dist.,
Gen. Oblig.,
A.M.B.A.C.,
Aaa 890 Zero Coupon, 12/1/08... 404,202
Aaa 935 Zero Coupon, 12/1/09... 395,823
Aaa 525 Zero Coupon, 12/1/13... 171,318
Puerto Rico Comnwlth.,
Aqueduct & Swr. Auth. Rev.,
7.875%, 7/1/17, Ser.
Baa 1,000 A.................... 1,095,890
Reg. Linked Bonds,
5.782%, 7/1/08,
Aaa 2,000DD M.B.I.A.............. 2,028,860
Puerto Rico Elec. Pwr.
Auth. Rev.,
5.00%, 7/1/12, Ser.
Baa1 1,720 O.................... 1,514,907
Puerto Rico Pub. Bldgs. Auth.,
Gtd. Pub. Ed. & Hlth. Facs.,
Zero Coupon, 7/1/06,
Baa1 3,000 Ser. J............... 1,570,260
Rural Lorain Cnty. Wtr.
Auth. Res. Rev.,
7.70%, 10/1/08,
Aaa 2,000D A.M.B.A.C............ 2,213,760
Scioto Cnty. Hosp. Fac.
Rev.,
Portsmouth Proj.,
7.625%, 5/15/08, Ser.
Aaa 2,290 B, M.B.I.A........... 2,493,833
Shawnee St. Univ.,
Gen. Receipts,
6.00%, 6/1/14, Ser. B,
Aaa 500 A.M.B.A.C............ 504,260
Student Loan Funding
Corp.,
Cincinnati Rev., Ser.
A,
A 1,400 7.20%, 8/1/03.......... 1,489,138
A 2,000 7.25%, 2/1/08.......... 2,076,560
Sugarcreek Local Sch.
Dist.,
Zero Coupon, 12/1/08,
Aaa 500 F.G.I.C.............. 227,080
Summit Cnty. Ind. Dev.
Rev.,
Century Products,
Gerber Foods,
A2 $ 3,250 7.75%, 11/1/05......... $ 3,438,500
Tuscarawas Cnty. Hosp. Fac. Rev.,
Union Hosp. Proj., Ser. A,
Baa 450 6.375%, 10/1/11........ 420,102
Baa 1,250 6.50%, 10/1/21......... 1,125,200
Univ. of Cincinnati,
Gen. Receipts,
7.00%, 6/1/11, Ser.
A1 1,000 L.................... 1,071,730
Univ. of Toledo,
Gen. Receipts,
7.70%, 6/1/18,
Aaa 1,000D M.B.I.A.............. 1,100,030
Virgin Islands Pub. Fin. Auth. Rev.,
7.25%, 10/1/18, Ser.
NR 1,000 A.................... 1,032,660
Virgin Islands Terr., Hugo Ins.
Claims Fund Prog.,
7.75%, 10/1/06, Ser.
NR 440 91................... 471,412
Virgin Islands Wtr. & Pwr. Auth.,
Elec. Sys. Rev.,
7.40%, 7/1/11, Ser.
NR 1,000 A.................... 1,042,100
Woodmore Indpt. Sch.
Dist.,
Gen. Oblig.,
A.M.B.A.C.,
Aaa 490 Zero Coupon, 12/1/05... 271,901
Aaa 480 Zero Coupon, 12/1/06... 249,581
Youngstown, Gen.
Oblig.,
6.125%, 12/1/14,
Aaa 300 M.B.I.A.............. 306,906
------------
Total Investments--98.2%
(cost $107,939,244;
Note 4).............. 113,413,096
Other assets in excess
of
liabilities--1.8%.... 2,092,125
------------
Net Assets--100%....... $115,505,221
------------
------------
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
* Standard & Poor's rating.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate. The
rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of Moody's and Standard & Poor's ratings.
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$107,939,244).............................................. $ 113,413,096
Interest
receivable....................................................................
1,943,713
Receivable for investments
sold........................................................ 1,734,965
Receivable for Series shares
sold...................................................... 225,919
Deferred expenses and other
assets..................................................... 2,189
-----------------
Total
assets.........................................................................
117,319,882
-----------------
Liabilities
Payable for investments
purchased......................................................
1,530,582
Payable for Series shares
reacquired................................................... 91,584
Accrued expenses and other
liabilities................................................. 78,541
Dividends
payable......................................................................
41,234
Management fee
payable.................................................................
39,484
Distribution fee
payable...............................................................
31,936
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities....................................................................
1,814,661
-----------------
Net
Assets.......................................................................
...... $ 115,505,221
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 98,834
Paid-in capital in excess of
par..................................................... 110,822,160
-----------------
110,920,994
Accumulated net realized loss on
investments......................................... (889,625)
Net unrealized appreciation on
investments........................................... 5,473,852
-----------------
Net assets, February 28,
1995........................................................ $ 115,505,221
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($48,674,182 / 4,166,420 shares of beneficial interest issued and
outstanding)..... $11.68
Maximum sales charge (3.0% of offering
price)........................................ .36
-----------------
Maximum offering price to
public..................................................... $12.04
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($66,723,244 / 5,707,726 shares of beneficial interest issued and
outstanding)..... $11.69
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($107,795 / 9,222 shares of beneficial interest issued and
outstanding)............ $11.69
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February
28,
Net Investment Income 1995
-----------
<S> <C>
Income
Interest............................ $ 3,844,586
-----------
Expenses
Management fee (net of fee waiver of
$9,174)........................... 277,272
Distribution fee--Class A........... 4,809
Distribution fee--Class B........... 262,387
Distribution fee--Class C........... 24
Custodian's fees and expenses....... 47,000
Transfer agent's fees and
expenses.......................... 40,000
Registration fees................... 19,000
Reports to shareholders............. 17,000
Audit fee........................... 5,300
Legal fees.......................... 5,000
Trustees' fees...................... 1,600
Miscellaneous....................... 4,026
-----------
Total expenses................. 683,418
-----------
Net investment income................. 3,161,168
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............. 27,546
Financial futures transactions...... (439,572)
-----------
(412,026)
-----------
Net change in unrealized appreciation
on:
Investments......................... (279,888)
Financial futures contracts......... 42,500
-----------
(237,388)
-----------
Net loss on investments............... (649,414)
-----------
Net Increase in Net Assets
Resulting from Operations............. $ 2,511,754
-----------
-----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment
income............... $ 3,161,168 $ 6,388,587
Net realized gain
(loss) on investment
transactions......... (412,026) 800,646
Net change in
unrealized
appreciation of
investments.......... (237,388) (7,741,847)
------------ ------------
Net increase (decrease)
in net assets
resulting from
operations........... 2,511,754 (552,614)
------------ ------------
Dividends from net
investment income
(Note 1)
Class A.............. (301,031) (258,026)
Class B.............. (2,859,970) (6,130,561)
Class C.............. (167) --
------------ ------------
(3,161,168) (6,388,587)
------------ ------------
Series share transactions
(net of share
conversions)
(Note 5)
Net proceeds from
shares sold.......... 17,320,657 16,655,835
Net asset value of
shares issued in
reinvestment of
dividends............ 1,815,644 3,713,106
Cost of shares
reacquired........... (26,006,166) (16,986,967)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions......... (6,869,865) 3,381,974
------------ ------------
Total decrease........... (7,519,279) (3,559,227)
Net Assets
Beginning of period...... 123,024,500 126,583,727
------------ ------------
End of period............ $115,505,221 $123,024,500
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-11-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Ohio Series (the ``Series'') commenced
investment operations in September, 1984. The Series is diversified and seeks
to
achieve its investment objective of obtaining the maximum amount of income
exempt from federal and applicable state income taxes with the minimum of risk
by investing in ``investment grade'' tax-exempt securities whose ratings are
within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its
existing portfolio securities or securities the Series intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Series may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets. There were no future contracts outstanding at February 28, 1995.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
-12-
<PAGE>
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$9,174. The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $26,100 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $169,300 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
With Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995 the Series incurred fees of approximately
$26,000 for the services of PMFS. As of February 28, 1995, approximately $5,000
of such fees were due to PMFS. Transfer agent fees and expenses in the Statement
of Operations include certain out-of-pocket expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $17,607,863 and $25,593,339, respectively.
The cost basis of investments for federal income tax purposes at February 28,
1995 was substantially the same as for financial reporting purposes and,
accordingly, net unrealized appreciation of investments, including short-term
investments, for federal income tax purposes was $5,473,852 (gross unrealized
appreciation--$6,488,863; gross unrealized depreciation--$1,015,011).
For federal income tax purposes, the Series has a capital loss carryforward
as of August 31, 1994 of approximately $279,400 which expires in 1996.
Accordingly, no capital gains distributions are expected to be paid to
shareholders until net gains have been realized in excess of such carryforward.
Note 5. Capital The Series currently offers
Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 3.0%. Class B shares are
sold with a contingent deferred sales charge which declines from 5% to zero
depending on the period of time the shares are held. Class C shares are sold
with a contingent deferred sales charge of 1% during the first year. Commencing
in February 1995, Class B shares automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share.
-13-
<PAGE>
Transactions in shares of beneficial interest for the six months ended
February 28, 1995 and the fiscal year ended August 31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 880,161 $ 13,951,887
Shares issued in reinvestment
of dividends................ 13,643 156,789
Shares reacquired............. (104,195) (1,185,088)
---------- ------------
Net increase in shares
outstanding before
conversion.................. 789,609 12,923,588
Shares issued upon conversion
from Class B................ 2,971,623 30,340,274
---------- ------------
Net increase in shares
outstanding................. 3,761,232 $ 43,263,862
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 163,929 $ 1,993,081
Shares issued in reinvestment
of dividends................ 12,343 148,632
Shares reacquired............. (146,584) (1,788,120)
---------- ------------
Net increase in shares
outstanding................. 29,688 $ 353,593
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 286,205 $ 3,253,672
Shares issued in reinvestment
of dividends................ 146,781 1,658,716
Shares reacquired............. (1,840,154) (24,808,189)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (1,407,168) (19,895,801)
Shares reacquired upon conver-
sion into Class A........... (2,971,623) (30,340,274)
---------- ------------
Net decrease in shares
outstanding................. (4,378,791) $(50,236,075)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 1,210,935 $ 14,657,554
Shares issued in reinvestment
of dividends................ 295,981 3,564,474
Shares reacquired............. (1,270,756) (15,198,847)
---------- ------------
Net increase in shares
outstanding................. 236,160 $ 3,023,181
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 9,924 $ 115,098
Shares issued in reinvestment
of dividends................ 12 139
Shares reacquired............. (1,160) (12,889)
---------- ------------
Net increase in shares
outstanding................. 8,776 $ 102,348
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 446 $ 5,203
---------- ------------
---------- ------------
- ---------------
* Commencement of offering of Class C shares.
</TABLE>
-14-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------------------
January 22,
Six Months
1990D
Ended Year Ended
August 31, Through
February 28,
- ---------------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------------
- ------- ------ ------ ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.72 $12.38 $
11.69 $11.17 $10.71 $10.85
------------ ------------
- ------- ------ ------ ------------
Income from investment operations
Net investment income............... .33** .66
.69 .70 .70 .47
Net realized and unrealized gain
(loss) on investment
transactions...................... (.04) (.66)
.69 .52 .46 (.14)
------------ ------------
- ------- ------ ------ ------------
Total from investment
operations...................... .29 --
1.38 1.22 1.16 .33
------------ ------------
- ------- ------ ------ ------------
Less dividends
Dividends from net investment
income............................ (.33) (.66)
(.69) (.70) (.70) (.47)
------------ ------------
- ------- ------ ------ ------------
Net asset value, end of period...... $ 11.68 $11.72 $
12.38 $11.69 $11.17 $10.71
------------ ------------
- ------- ------ ------ ------------
------------ ------------
- ------- ------ ------ ------------
TOTAL RETURN#:...................... 2.65% (0.01)%
12.12% 11.26% 11.06% 2.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 48,674 $4,749 $
4,647 $2,095 $ 923 $ 462
Average net assets (000)............ $ 9,697 $4,733 $
2,904 $1,289 $ 615 $ 289
Ratios to average net assets:
Expenses, including distribution
fees............................ .83%*/** .84%
.84% .81% .93% .96%*
Expenses, excluding distribution
fees............................ .73%*/** .74%
.74% .71% .83% .86%*
Net investment income............. 5.88%*/** 5.45%
5.73% 6.34% 6.34% 6.51%*
Portfolio turnover.................. 15% 20%
28% 37% 37% 24%
</TABLE>
- ---------------
* Annualized.
** Net of fee waiver.
D Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than
a full year are not annualized.
See Notes to Financial Statements.
-15-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class C
--------
Class B
Six
- ---------------------------------------------------------------------------
Months
Six Months
Ended
Ended Year Ended
August 31, February
February 28,
- ---------------------------------------------------------- 28,
1995 1994 1993
1992 1991 1990 1995
<S> <C> <C> <C> <C>
<C> <C> <C>
------------ -------- --------
- -------- ------- ------- --------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 11.73 $ 12.38 $ 11.70 $
11.18 $ 10.71 $ 10.85 $11.73
------------ -------- --------
- -------- ------- ------- --------
Income from investment
operations
Net investment income......... .31** .61 .65
.65 .65 .66 .29**
Net realized and unrealized
gain (loss) on investment
transactions................ (.04) (.65) .68
.52 .47 (.14) (.04)
------------ -------- --------
- -------- ------- ------- --------
Total from investment
operations................ .27 (.04) 1.33
1.17 1.12 .52 .25
------------ -------- --------
- -------- ------- ------- --------
Less distributions
Dividends from net investment
income...................... (.31) (.61) (.65)
(.65) (.65) (.66) (.29)
------------ -------- --------
- -------- ------- ------- --------
Net asset value, end of
period...................... $ 11.69 $ 11.73 $ 12.38 $
11.70 $ 11.18 $ 10.71 $11.69
------------ -------- --------
- -------- ------- ------- --------
------------ -------- --------
- -------- ------- ------- --------
TOTAL RETURN#:................ 2.44% (0.33)% 11.58%
10.79% 10.74% 4.87% 2.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $ 66,723 $118,270 $121,937
$102,199 $92,572 $89,183 $108
Average net assets (000)...... $ 105,825 $121,365 $110,053 $
96,178 $90,437 $89,302 $6
Ratios to average net assets:
Expenses, including
distribution fees......... 1.23%*/** 1.24% 1.24%
1.21% 1.33% 1.32% 1.48%*/**
Expenses, excluding
distribution fees......... .73%*/** .74% .74%
.71% .83% .84% .73%*/**
Net investment income....... 5.48%*/** 5.05% 5.33%
5.73% 5.94% 6.08% 5.23%*/**
Portfolio turnover............ 15% 20% 28%
37% 37% 24% 15%
<CAPTION>
August 1,
1994D
Through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $11.75
----------
Income from investment
operations
Net investment income......... .05
Net realized and unrealized
gain (loss) on investment
transactions................ (.02)
----------
Total from investment
operations................ .03
----------
Less distributions
Dividends from net investment
income...................... (.05)
----------
Net asset value, end of
period...................... $11.73
----------
----------
TOTAL RETURN#:................ 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $5
Average net assets (000)...... $2
Ratios to average net assets:
Expenses, including
distribution fees......... 2.28%*
Expenses, excluding
distribution fees......... 1.53%*
Net investment income....... 4.73%*
Portfolio turnover............ 20%
</TABLE>
- ---------------
* Annualized.
** Net of fee waiver.
D Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
See Notes to Financial Statements.
-16-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unlesspreceded or accompanied by a current prospectus.
74435M838
74435M846 MF123E2
74435M499 (LOGO) Cat. #6425315
SEMI ANNUAL REPORT February 28, 1995
Prudential
Municipal
Series Fund
- -----------------------------
(PICTURE)
Pennsylvania Series
(LOGO)
<PAGE>
Letter to Shareholders
April 3, 1995
Dear Shareholder:
A powerful rally has swept through the tax-exempt municipal bond market this
winter, lifting the value of your shares as interest rates fell and
newly-issued, tax-exempt bonds became scarce. We are pleased to report that
your Prudential Municipal Series Fund -- Pennsylvania Series has earned a
positive total return although it did finish slightly behind the average
Pennsylvania municipal bond fund as measured by Lipper Analytical
Services, Inc.
(GRAPH)
Less Means More...
For You!
Prudential mutual fund shareholders will
be seeing total returns increase
in the months to come, thanks to a
reduction in Fund management expenses.
Prudential Mutual Funds lowered the rate
on January 1, 1995, to 0.45% from 0.50%.
It is our way of showing you that we appreciate
your business and that we remain committed
to managing the Fund for your benefit.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of February 28, 1995
<CAPTION>
Six Months 1 Year 5 Years Since Inception2
<S> <C> <C> <C> <C>
Class A 2.4% 0.7% 44.2% 44.9%
Class B 2.2% 0.3% 41.4% 68.9%
Class C 2.1% N/A N/A 2.2%
Lipper PA
Muni. Avg3 2.5% 0.6% 45.6% 70.9%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of March 31, 1995
<CAPTION>
1 Year 5 Years Since Inception2
<S> <C> <C> <C>
Class A 5.5% 7.7% 7.5%
Class B 5.1% 7.3% 6.9%
Class C N/A N/A 4.3%
</TABLE>
Past performance is not indicative of future results. Principal and
investment return will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Series charges a maximum front-end sales load of 3%
for Class A shares. Class B shares are subject to a contingent deferred
sales charge of 5%, 4%, 3%, 2%, 1% and 1% for six years. Class C shares
have a 1% CDSC for one year. Class B shares will automatically convert
to Class A shares on a quarterly basis, after approximately seven years.
2Inception dates: 1/22/90 Class A; 4/3/87, Class B; 8/1/94 Class C.
3Lipper average returns are for 53 funds for six months, 46 funds for
one year, 15 funds for five years, 1 fund for 10 years, and 8 funds
since inception of Class B shares on 4/3/87.
-1-
<PAGE>
Our Objective.
The Series seeks maximum income exempt from Pennsylvania state and federal
income taxes consistent with preservation of principal. Certain taxpayers
may be subject to the federal alternative minimum tax, however. The Series
will invest primarily in Pennsylvania state, municipal and local government
obligations and obligations of U.S. territories (such as Puerto Rico,
the U.S. Virgin Islands and Guam), the income from which is also exempt
from federal and Pennsylvania state income taxes.
(GRAPH)
On the Hill...
In 1995, Congress will most likely consider
an initiative that would restore full income tax
deductibility for individual retirement account
(IRA) contributions for middle-income wage earners.
In addition, Congress may also consider the creation
of a new tax-deferred savings account called the
"American Dream Savings Account." Prudential
Mutual Funds supports both of these proposals,
and we urge you to share your opinion with your
Congressional representatives. We will keep you
updated on these initiatives as they make their
way through the legislative process.
New Year Opens With Bond Rally.
What a difference six months can make! When we last reported to you,
the tax-exempt bond market was in turmoil because interest rates were
rising sharply, and prices (which move in the opposite direction of
interest rates) were falling sharply.
Volatility escalated last year when the Federal Reserve started to
increase short-term interest rates in a pre-emptive strike against
inflation. By November, after the Federal Reserve's sixth increase
in the federal funds rate (the interbank overnight lending rate),
investors began to believe that the economy was showing signs of
slowing. As a result, long-term interest rates in the tax-exempt
bond market started to fall.
Long-term rates fell dramatically, and have continued to do so even
though the Federal Reserve raised short-term rates again on February
1, 1995. In fact, on March 2, the Bond Buyer's Revenue Bond Index
sank to 6.3% -- its lowest since last June. That's more than a full
percentage point below its 1994 high -- 7.4% recorded on November
17, 1994.
What We Did As Interest Rates Moved.
During this period of fluctuation, the Series sought to stabilize
asset values by maintaining a balance between bonds with higher
coupons and those with lower coupons, sometimes called premium and
discount bonds. The higher yielding premium bonds help cushion the
impact of rising interest rates while the lower coupon or discount
bonds offer price appreciation potential when interest rates decline.
Over the last six months, Series' performance was enhanced by the
purchase of Lancaster County resource recovery revenue bonds, which
were purchased at an extremely attractive price when there was
disagreement in the market over credit quality. Based on our own
credit analysis, we purchased these bonds when they were trading
at a price similar to a BBB-rated bond. These bonds have now
appreciated, and are trading like A-rated bonds.
-2-
<PAGE>
A Tax Reminder...
As a result of the Revenue Reconciliation Act
of 1993, it is possible that this year you may
have some taxable income from your normally
tax-exempt municipal bond fund. The law stipulates
that the portion of any gain realized on the sale
or retirement of a tax-exempt bond purchased at
a market discount to its face value may be taxed
as ordinary income. The law affects bonds purchased
after April 30, 1993.
Smaller Supply Supports Market, Too.
The tax-exempt municipal bond market has also been helped recently
by a scarcity of new supply. Last year's higher interest rates made
many issuers reluctant to borrow money. In fact, the Revenue Bond
Index rose dramatically to 6.9% from 5.5% -- nearly one and a half
percentage points. As a result, the level of new bonds issued
nationwide fell by 44%, Pennsylvania supply fell by a slightly
smaller margin, by 39%.
Pennsylvania: Economy Growing, Budget Conservative.
The Commonwealth of Pennsylvania continues to recover from the
recession on a par with other states in the Northeast. Unemployment
fell in 1994 to 5.9% from 6.4%, although it is still above the
national average of 5.4% in December.
Pennsylvania ended fiscal year 1994 with a $336 million surplus,
and it is expected to end 1995 in the same fashion. Finances are
conservatively managed. Pennsylvania ran a sizeable deficit as
recently as 1991, but instituted a significant tax increase in
the following year to rebuild revenues.
The Outlook.
Tax-exempt municipal bonds have rallied substantially this winter. In
fact, the Lehman Brothers Municipal Bond Index has increased 2.8% over
the last six months. That is a substantial relief to investors who
weathered sharply rising interest rates and falling bond prices in 1994.
We believe long-term interest rates may stabilize in the year ahead,
as investors continue to gain confidence that the Federal Reserve is
satisfied that it has inflation under control. In addition, we expect
the supply of tax-exempt municipals to continue to contract, which should
also provide an additional reward to investors by supporting prices.
-3-
<PAGE>
As always, it is a pleasure to work for you. We thank you for remaining
with the Prudential Municipal Series Fund -- Pennsylvania Series through
a most difficult 1994. We appreciate the confidence you have shown in us.
Fund Update
Starting in February 1995, Class B
shareholders may have begun to notice
a change in their Fund holdings.
That's when Class B shares began to
automatically convert to Class A shares,
on a quarterly basis, approximately
seven years after purchase. As you
may know, Class A shares generally
carry lower annual distribution expenses
than Class B shares. Accordingly, after
conversion you will earn higher total
returns on your investment than you would
have as a Class B shareholder.
Following the May cycle, conversions
of eligible Class B shares and special
exchanges of Class B and C shares will
take place each calendar quarter (March,
June, September and December) starting
in September 1995.
Sincerely,
Lawrence C. McQuade
President
Carla Wrocklage
Portfolio Manager
-4-
<PAGE>
PORTFOLIO Q&A
(PICTURE)
Dennis Bushe
Many investors avoided bond funds in the past year, fearing that
rising interest rates would erode their returns and add volatility
to their investment portfolio. If you are contemplating putting cash
into the bond market -- in taxable or tax-exempt securities -- you
might want to consider some of the following points. We talked with
Prudential Mutual Funds chief fixed income strategist Dennis Bushe
about why bonds and bond mutual funds may make sense in today's
investment environment.
Q. Why are bonds an attractive buy right now?
A. First, bond prices corrected in 1994, which put interest rates
at very attractive levels in 1995. Second, real rates of return
(the interest rate minus the inflation rate) are still very high
historically. According to Ibbotson Associates, a nationally
recognized investment analysis firm, the annual inflation-adjusted
return on bonds from 1926 to 1994 was between 2.5% and 3.0%. Today's
investors receive over 4.5% in total inflation-adjusted, annualized
total return. Of course, these numbers are just for illustration, but
they show how much higher interest rates improve bond total returns
when inflation is only 2.7%, as measured by the Consumer Price Index.
And beating inflation is one primary goal of long-term investing.
Q. Why buy a bond fund instead of an individual bond?
A. One of the biggest risks to bond investing is credit quality.
Of course you can avoid virtually all credit risk in a government
bond fund, but some investors need higher income than Uncle Sam
provides. Bond funds help manage this risk, and that may be especially
important in 1995. First of all, if the U.S. economy is beginning to
slow down, as many economists believe, then credit quality is a concern.
A credit team becomes very valuable, carefully selecting bonds in different
sectors and industries for bond portfolios. In addition, few individual
investors have the resources or clout to continually monitor companies,
unearth possible credit problems before they surface, and negotiate
favorable terms with troubled issuers -- a bond fund does. Finally,
the diversification of a bond fund may help investors avoid wide price
swings if one holding does experience financial difficulties.
-5-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND Portfolio of Investments
PENNSYLVANIA SERIES February 28, 1995 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--98.3%
Allegheny Cnty. Arpt.
Rev.,
Greater Pittsburgh
Int'l. Arpt., F.S.A.,
Aaa $ 1,000 6.60%, 1/1/04.......... $ 1,060,300
Aaa 1,230 5.625%, 1/1/23......... 1,123,015
Allegheny Cnty. Higher
Ed. Bldg. Auth. Rev.,
Robert Morris Coll.,
7.00%, 6/15/08,
Aaa 1,000 M.B.I.A.............. 1,063,280
Allegheny Cnty. Hosp.
Dev. Auth. Rev.,
Magee Womens Hosp.,
F.G.I.C.,
Aaa 2,000 Zero Coupon, 10/1/14... 609,260
Aaa 2,000 Zero Coupon, 10/1/16... 536,260
Aaa 2,000 Zero Coupon, 10/1/18... 471,460
Aaa 4,000 Zero Coupon, 10/1/19... 884,800
Presbyterian Univ.
Hosp.,
7.625%, 7/1/15, Ser. C,
Aaa 1,100 M.B.I.A.............. 1,183,787
West Penn. Hosp. Hlth.
Ctr.,
NR 2,000 8.50%, 1/1/20.......... 2,209,360
Allegheny Cnty. Ind.
Dev. Auth., USX
Proj.,
Baa3 4,500 6.70%, 12/1/20......... 4,318,560
Allegheny Cnty.
Residential Fin.
Auth.,
Mtge. Rev., G.N.M.A.,
9.00%, 6/1/17, Ser.
Aaa 375 F.................... 403,856
7.40%, 12/1/22, Ser.
Aaa 970 Q.................... 1,019,907
Allegheny Cnty. San.
Auth. Swr. Rev.,
F.G.I.C.,
Aaa 2,620 Zero Coupon, 12/1/05... 1,441,734
Zero Coupon, 6/1/06,
Aaa 1,640 Ser. A............... 869,134
Allegheny Cnty.,
7.30%, 12/1/10, Ser.
Aaa 1,500D C-37, M.B.I.A........ 1,666,650
Beaver Cnty. Ind. Dev.
Auth. Poll. Ctrl.
Rev.,
Ohio Edison Proj.,
7.75%, 9/1/24, Ser. A,
Aaa 1,150 F.G.I.C.............. 1,260,895
Berks Cnty. Ind. Dev. Auth. Rev.,
Lutheran Home Proj.,
NR $ 1,500 6.875%, 1/1/23......... $ 1,395,810
Bethlehem Auth. Wtr.
Rev.,
5.20%, 11/15/21,
Aaa 3,000 M.B.I.A.............. 2,682,120
Boyertown Area Sch.
Dist.,
5.25%, 2/1/17, Ser. B,
Aaa 2,000 A.M.B.A.C............ 1,800,280
Bristol Twnshp. Sch.
Dist.,
Gen Oblig.,
6.625%, 2/15/12, Ser.
Aaa 1,500D A, M.B.I.A........... 1,642,635
Bucks Cnty. Wtr. & Swr.
Auth. Rev., Neshaminy
Interceptor Swr.
Sys.,
7.50%, 12/1/13,
Aaa 2,000D F.G.I.C.............. 2,181,300
Butler Cnty. Hosp. Auth. Rev.,
North Hills, Passavant Hosp.,
7.00%, 6/1/22, Ser. A,
AAA* 1,000 C.G.I.C.............. 1,057,570
Cambria Cnty., Gen.
Oblig.,
6.20%, 8/15/21, Ser.
Aaa 2,500 94A, F.G.I.C......... 2,530,575
Chester Upland Sch.
Auth.,
Sch. Rev.,
A* 1,000 6.375%, 9/1/21......... 1,000,870
Dauphin Cnty. Gen. Auth. Rev.,
Aaa 1,000 7.40%, 1/1/06, B.I.G... 1,055,520
Delaware Cnty. Auth.
Rev.,
Crozer Chester Med.
Ctr.,
7.15%, 12/15/05, Ser.
ABC,
Aaa 2,550 M.B.I.A.............. 2,840,623
Villanova Univ.,
NR 1,000D 7.75%, 8/1/18.......... 1,106,410
5.50%, 8/1/23,
Aaa 3,000 M.B.I.A.............. 2,792,550
Delaware Cnty. Ind. Dev. Auth.
Rev., Res. Recovery Proj.,
A1 2,000 8.10%, 12/1/13......... 2,117,680
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Delaware River Jt. Toll
Bridge Comm. Rev.,
6.00%, 7/1/18,
Aaa $ 5,500 F.G.I.C.............. $ 5,515,565
Doylestown Hosp. Auth.
Rev.,
Pine Run Retirement,
7.20%, 7/1/23, Ser.
NR 3,180 A.................... 3,078,940
Emmaus Gen. Auth. Rev.,
Local Gov't. Bond,
B.I.G.
7.90%, 5/15/18, Ser.
Aaa 1,250 C.................... 1,342,487
7.90%, 5/15/18, Ser.
Aaa 2,000 E.................... 2,147,260
7.90%, 5/15/18, Ser.
Aaa 1,600 F.................... 1,718,384
8.00%, 5/15/18, Ser.
Aaa 1,000 B.................... 1,073,990
Erie Higher Ed. Bldg.
Auth.,
Mercyhurst Coll.
Proj.,
BBB* 1,000D 7.85%, 9/15/19......... 1,114,600
BBB* 3,250 5.75%, 3/15/23......... 2,710,695
Guam Arpt. Auth. Rev.,
6.70%, 10/1/23, Ser.
BBB* 3,500 B.................... 3,464,510
Harrisburg Auth. Lease
Rev.,
Green Cnty. Prison
Proj.,
6.625%, 6/1/13,
Aaa 1,500 F.G.I.C.............. 1,598,055
Harrisburg Redev. Auth.
Rev.,
Cap. Impvt.,
7.875%, 11/2/16, Ser.
Aaa 900 A, F.G.I.C........... 970,200
Lancaster Cnty. Solid
Waste Mgmt. Auth.
Rev.,
Res. Rec. Sys.
Landfill Rev.,
A1 500 7.875%, 12/15/09....... 510,380
Res. Rec. Sys. Rev.,
A1 750 7.75%, 12/15/04........ 769,433
A1 1,000 8.375%, 12/15/04....... 1,033,520
Langhorne Manor Boro.
Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp.,
Ba1 3,275 7.35%, 7/1/22.......... 3,036,154
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj.,
Baa1 1,800 6.75%, 5/1/14.......... 1,861,146
Baa1 1,500 6.75%, 5/1/24.......... 1,518,570
Lehigh Cnty. Gen.
Purpose Auth. Revs.,
Horizon Hlth. Sys.
Inc.,
8.25%, 7/1/13, Ser.
NR 500 A.................... 627,935
Lehigh Cnty. Gen.
Purpose Auth. Revs.,
Horizon Hlth. Sys.
Inc.,
8.25%, 7/1/13, Ser.
A+* $ 750D B.................... $ 812,948
St. Lukes Hosp. of
Bethlehem Proj.,
A.M.B.A.C.,
Aaa 750 5.30%, 11/15/06........ 732,675
Aaa 1,000 5.30%, 11/15/07........ 965,820
Lehigh Cnty. Ind. Dev. Auth. Rev.,
Pwr. & Lt. Co.,
9.375%, 7/1/15, Ser.
A2 1,300 A.................... 1,343,602
Luzerne Cnty. Ind. Dev.
Auth. Rev., Gas &
Water,
7.125%, 12/1/22, Ser.
Baa3 6,000 B.................... 6,055,620
Montgomery Cnty. Higher
Ed. & Hlth. Auth.
Hosp. Rev., Jeanes
Hlth. Sys. Proj.,
BBB* 4,000D 8.625%, 7/1/07......... 4,714,760
Montgomery Cnty. Ind.
Dev. Auth. Rev.,
Poll. Ctrl.,
Philadelphia Elec.
Co.,
Baa2 1,000 7.60%, 4/1/21.......... 1,047,160
Res. Recovery,
AA-* 2,000 7.50%, 1/1/12.......... 2,107,300
Montgomery Cnty. Redev. Auth.,
Multi-family Hsg.,
6.50%, 7/1/25, Ser.
NR 2,000 A.................... 1,823,460
Northampton Cnty.
Higher Ed. Auth.
Rev.,
Lehigh Univ.,
7.10%, 11/15/09,
Aaa 1,500 M.B.I.A.............. 1,615,680
Moravian Coll.,
BBB-* 2,095 8.20%, 6/1/11.......... 2,351,826
Northeastern Hosp. &
Ed. Auth. Coll. Rev.,
Kings Coll. Proj.,
BBB* 3,235 6.00%, 7/15/18......... 3,060,148
Northumberland Cnty.
Ind. Dev. Auth. Rev.,
Roaring Creek Wtr.,
NR 1,500 6.375%, 10/15/23....... 1,316,385
Pennsylvania Econ. Dev. Auth.,
Macmillan Ltd. Partnership Proj.,
Baa2 3,000 7.60%, 12/1/20......... 3,134,250
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Pennsylvania Econ. Dev. Auth.,
Wastewater Treatment
Rev., Sun Co. R & M
Proj.,
7.60%, 12/1/24, Ser.
Baa1 $ 4,500 A.................... $ 4,733,865
Pennsylvania Hsg. Fin.
Agcy.,
Sngl. Fam. Mtge.,
8.10%, 10/1/10, Ser.
Aa 780 X.................... 829,866
7.60%, 4/1/16, Ser.
Aa 1,000 S.................... 1,061,970
Aa 2,930 7.80%, 10/1/20......... 3,135,510
8.15%, 4/1/24, Ser.
Aa 810 X.................... 851,901
Aa 1,050DD 8.059%, 4/1/25......... 934,500
Pennsylvania Intergovernmental
Cooperation Auth.,
Spec.Tax Rev.,
5.60%, 6/15/15,
Aaa 4,000 M.B.I.A.............. 3,795,280
Baa 1,000D 6.80%, 6/15/22......... 1,094,750
Pennsylvania St. Cert. of Part.,
6.25%, 11/1/06,
Aaa 1,900 F.S.A................ 1,987,723
Pennsylvania St. Higher
Edl. Facs. Auth.
Rev.,
Allegheny Coll.,
BBB+* 2,000 6.00%, 11/1/22......... 1,886,780
Drexel Univ.,
BBB+* 2,500 6.375%, 5/1/17......... 2,477,750
Hahnemann Univ. Proj.,
7.20%, 7/1/09,
Aaa 1,500 M.B.I.A.............. 1,620,240
La Salle Univ.,
7.70%, 5/1/10,
Aaa 1,100 M.B.I.A.............. 1,202,509
Med. Coll. of
Pennsylvania,
8.375%, 3/1/11, Ser.
Baa 355 A.................... 372,942
7.50%, 3/1/14, Ser.
Baa 2,350 A.................... 2,361,162
St. Sys,
5.625%, 6/15/19, Ser.
Aaa 1,520 J, A.M.B.A.C......... 1,432,615
Thomas Jefferson Univ.,
AAA* 1,250D 8.00%, 1/1/18.......... 1,375,738
Pennsylvania St. Ind.
Dev. Auth., Econ.
Rev.,
7.00%, 1/1/11, Ser.
A 3,000D A.................... 3,331,560
5.50%, 1/1/14,
Aaa 4,250 A.M.B.A.C............ 4,048,507
Pennsylvania St. Tpke. Comn. Rev.,
7.625%, 12/1/17, Ser.
Aaa 1,375D D, F.G.I.C........... 1,524,958
7.50%, 12/1/19, Ser.
Aaa 4,650D K.................... 5,209,813
Pennsylvania St. Univ.,
NR $ 1,000D 6.75%, 7/1/09.......... $ 1,085,630
Philadelphia Arpt.
Rev.,
Philadelphia Arpt.
Sys.,
Baa 2,000 9.00%, 6/15/15......... 2,111,700
Philadelphia Gas Wks.
Rev.,
7.20%, 6/15/98, Ser.
Baa1 500 13................... 526,480
7.30%, 6/15/99, Ser.
Baa1 625 13................... 667,700
Baa1 215 7.70%, 6/15/11......... 246,138
Baa1 1,000 6.375%, 7/1/14......... 993,840
7.70%, 6/15/21, Ser.
Aaa 3,430D 13................... 3,940,693
Baa1 1,100 6.375%, 7/1/26......... 1,072,951
Philadelphia Hosps. &
Higher Ed. Fac. Auth.
Rev.,
Childrens' Hosp. Proj.,
5.00%, 2/15/21, Ser.
Aa 2,000 A.................... 1,626,080
Childrens' Seashore
House,
A-* 1,000 7.00%, 8/15/12......... 1,012,350
7.00%, 8/15/17, Ser.
A-* 1,000 A.................... 1,013,040
Grad. Hlth. Systems,
6.25%, 7/1/18, Ser.
Baa1 1,000 A.................... 876,970
Baa1 2,750 7.25%, 7/1/18.......... 2,704,075
Philadelphia Ind. Dev.
Rev.,
Inst. for Cancer
Research Proj.,
7.25%, 7/1/10, Ser.
AA-* 5,770 B.................... 6,159,763
Nat'l. Brd. of Med.
Examiners Proj.,
A+* 5,000 6.75%, 5/1/12.......... 5,179,000
Philadelphia Mun. Auth.
Rev., F.G.I.C.
Aaa 2,000 5.625%, 11/15/14....... 1,918,200
Aaa 1,500 5.625%, 11/15/18....... 1,411,110
Philadelphia Pkg. Auth.
Rev.,
Arpt. Pkg. 89,
7.375%, 9/1/18,
Aaa 2,200 A.M.B.A.C............ 2,363,394
Philadelphia Redev. Auth. Rev.,
Home Impvt. Loan,
7.375%, 6/1/03, Ser.
A 355 A.................... 369,615
A 350 7.40%, 6/1/08.......... 371,924
Philadelphia Sch.
Dist.,
Gen. Oblig.,
5.85%, 7/1/09, Ser. A,
Aaa 1,710 M.B.I.A.............. 1,733,051
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
<TABLE>
<CAPTION>
Principal
Moody's Amount Value
Rating (000) Description(a) (Note 1)
<C> <C> <S> <C>
Philadelphia Wtr. &
Swr. Rev., M.B.I.A.
Zero Coupon, 10/1/02,
Aaa $ 7,900 Ser. 15.............. $ 5,240,544
6.875%, 10/1/06, Ser.
Aaa 700 15................... 750,043
Aaa 2,775 5.25%, 6/15/23......... 2,458,650
Pittsburgh Stadium Auth. Rev.,
7.50%, 10/15/01,
Aaa 500 F.G.I.C.............. 531,855
Pittsburgh Urban Redev. Auth.,
Mtge. Rev.,
8.30%, 4/1/17, Ser.
A1 795 B.................... 849,537
Pottstown Boro. Auth., Swr. Rev.,
Zero Coupon, 11/1/03,
Aaa 1,200 F.G.I.C.............. 747,588
Puerto Rico Comnwlth.,
5.50%, 7/1/08,
Aaa 3,340 M.B.I.A.............. 3,339,833
7.382%, 7/1/20,
Aaa 4,250DD F.S.A................ 4,058,750
Gen. Oblig.,
5.40%, 7/1/07,
Aaa 1,500 M.B.I.A.............. 1,498,530
7.00%, 7/1/10,
Aaa 4,030 A.M.B.A.C............ 4,587,349
Pub. Impvt. Ref.,
7.00%, 7/1/10,
Aaa 720 M.B.I.A.............. 819,576
Puerto Rico Elec. Pwr.
Auth., Pwr. Rev.,
7.00%, 7/1/06, Ser.
Baa1 1,800 S.................... 1,957,158
Puerto Rico Hsg. Fin.
Agcy.,
Baa 750 5.125%, 12/1/05........ 683,453
Baa 2,000 5.25%, 12/1/06......... 1,825,640
Puerto Rico Pub.
Impvt.,
Aaa 5,250D/@ 7.70%, 7/1/20.......... 5,987,730
Sayre Hlth. Care Facs.
Auth. Rev., Cap.
Asset Fin.
Prog. C, A.M.B.A.C.,
Aaa 500 7.70%, 12/1/13......... 550,855
Aaa 1,000 7.625%, 12/1/15........ 1,106,060
Scranton Pkg. Auth.
Rev.,
A+* 1,600 8.125%, 9/15/14........ 1,763,328
Scranton-Lackawanna
Hlth. & Welfare Auth.
Rev.,
Univ. Of Scranton
Proj.,
A-* 1,000D 7.50%, 6/15/06......... 1,126,380
6.50%, 3/1/15, Ser.
A-* 2,250 C.................... 2,251,462
So. Fork Mun. Auth. Hosp. Rev.,
Lee Hosp. Proj.,
5.50%, 7/1/23, Ser.
A-* $ 2,500 A.................... $ 2,069,300
Swarthmore Boro. Gen. Auth.
Rev., Pennsylvania Coll. Rev.,
A-* 600D 7.25%, 9/15/10......... 666,156
Venango Cnty. Gen.
Oblig.,
5.25%, 7/15/18, Ser. B,
Aaa 2,265 F.G.I.C.............. 2,052,770
Virgin Islands Pub. Fin. Auth. Rev.,
7.25%, 10/1/18, Ser.
NR 1,950 A.................... 2,013,687
Hwy. Trans. Gas Tax,
BBB* 1,000 7.70%, 10/1/04......... 1,079,160
Virgin Islands Terr.,
Hugo Ins. Claims Fund Proj.,
7.75%, 10/1/06, Ser
NR 1,055 91................... 1,130,316
Washington Cnty. Auth.
Lease Rev., Mun.
Fac.,
Shadyside Hosp.,
7.45%, 12/15/18, Ser.
C-1D,
Aaa 2,900D A.M.B.A.C............ 3,283,525
Washington Cnty. Hosp. Auth. Rev.,
Monongahela Valley Hosp.,
A 2,750 6.75%, 12/1/08......... 2,822,683
York Cnty. Solid Waste
&
Refuse Auth. Rev.,
Res. Rec. Proj.,
8.20%, 12/1/14, Ser.
AA-* 1,000 C.................... 1,065,440
------------
Total long-term
investments
(cost $239,578,327).... 250,470,660
------------
SHORT-TERM INVESTMENT--0.2%
Schuylkill Cnty. Ind. Dev. Auth.,
Westwood Energy Pty.,
4.05%, 3/1/95, Ser. 85,
P-1 600 F.R.D.D.
(cost $600,000)........ 600,000
------------
Total Investments--98.5%
(cost $240,178,327;
Note 4).............. 251,070,660
Other assets in excess
of
liabilities--1.5%.... 3,858,712
------------
Net Assets--100%....... $254,929,372
------------
------------
</TABLE>
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note#.
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
# For purposes of amortized cost valuation, the
maturity date of these securities is considered to
be the later of the next date on which the
security can be redeemed at par, or the next date
on which the rate of interest is adjusted.
* Standard & Poor's rating.
D Prerefunded issues are secured by escrowed cash
and/or direct U.S. guaranteed obligations.
DD Inverse floating rate bond. The coupon is
inversely indexed to a floating interest rate. The
rate shown is the rate at the period end.
@ Pledged as initial margin on financial futures
contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a
description of Moody's and Standard & Poor's ratings.
-10- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Assets and Liabilities
(Unaudited)
<TABLE>
<CAPTION>
Assets
February 28, 1995
-----------------
<S>
<C>
Investments, at value (cost
$240,178,327).............................................. $ 251,070,660
Cash.........................................................................
.......... 80,809
Interest
receivable....................................................................
3,978,507
Receivable for investments
sold........................................................ 2,961,145
Receivable for Series shares
sold...................................................... 174,201
Deferred expenses and other
assets..................................................... 42,496
-----------------
Total
assets.......................................................................
258,307,818
-----------------
Liabilities
Payable for investments
purchased......................................................
2,716,669
Payable for Series shares
reacquired................................................... 363,155
Dividends
payable......................................................................
87,448
Management fee
payable.................................................................
86,897
Distribution fee
payable...............................................................
85,764
Due to broker-variation
margin.........................................................
37,213
Deferred trustees'
fees................................................................
1,300
-----------------
Total
liabilities..................................................................
3,378,446
-----------------
Net
Assets.......................................................................
...... $ 254,929,372
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................ $ 246,251
Paid-in capital in excess of
par..................................................... 246,628,170
-----------------
246,874,421
Accumulated net realized loss on
investments......................................... (2,135,007)
Net unrealized appreciation on
investments........................................... 10,189,958
-----------------
Net assets, February 28,
1995........................................................ $ 254,929,372
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($42,111,938 / 4,067,636 shares of beneficial interest issued and
outstanding)..... $10.35
Maximum sales charge (3% of offering
price).......................................... .32
-----------------
Maximum offering price to
public..................................................... $10.67
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($212,598,089 / 20,536,231 shares of beneficial interest issued and
outstanding)... $10.35
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($219,345 / 21,187 shares of beneficial interest issued and
outstanding)........... $10.35
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
February
Net Investment Income 28, 1995
-----------
<S> <C>
Income
Interest............................. $ 8,501,952
-----------
Expenses
Management fee, net waiver of
$20,124.............................. 606,233
Distribution fee--Class A............ 7,237
Distribution fee--Class B............ 589,786
Distribution fee--Class C............ 580
Transfer agent's fees and expenses... 105,000
Custodian's fees and expenses........ 54,000
Reports to shareholders.............. 18,000
Registration fees.................... 8,000
Audit fee............................ 5,300
Legal fees........................... 5,000
Trustee's fees....................... 1,600
Miscellaneous........................ 6,917
-----------
Total expenses..................... 1,407,653
-----------
Net investment income.................. 7,094,299
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.............. (883,918)
Financial futures contracts.......... 48,654
-----------
(835,264)
-----------
Net change in unrealized
appreciation on:
Investments.......................... (950,793)
Financial futures contracts.......... (563,063)
-----------
(1,513,856)
-----------
Net loss on investments................ (2,349,120)
-----------
Net Increase in Net Assets
Resulting from Operations.............. $ 4,745,179
-----------
-----------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1995 1994
------------ ------------
<S> <C> <C>
Operations
Net investment income... $ 7,094,299 $ 14,193,314
Net realized loss on
investment
transactions.......... (835,264) (7,799)
Net change in unrealized
appreciation of
investments........... (1,513,856) (17,783,224)
------------ ------------
Net increase (decrease)
in net
assets resulting from
operations............ 4,745,179 (3,597,709)
------------ ------------
Dividends and distributions (Note 1)
Dividends to
shareholders from
net investment income
Class A............... (451,217) (569,122)
Class B............... (6,638,843) (13,624,192)
Class C............... (4,239) --
------------ ------------
(7,094,299) (14,193,314)
------------ ------------
Distributions to
shareholders from net
realized gain on
investment
transactions
Class A............... -- (97,328)
Class B............... -- (2,598,620)
Class C............... -- --
------------ ------------
-- (2,695,948)
------------ ------------
Series share transactions
(net of
share conversions) (Note
5)
Net proceeds from shares
subscribed............ 10,671,590 46,954,314
Net asset value of
shares
issued in reinvestment
of dividends and
distributions......... 4,101,585 9,903,212
Cost of shares
reacquired.............. (25,968,842) (40,990,785)
------------ ------------
Net increase (decrease)
in net assets from
Series share
transactions.......... (11,195,667) 15,866,741
------------ ------------
Total decrease............ (13,544,787) (4,620,230)
Net Assets
Beginning of period....... 268,474,159 273,094,389
------------ ------------
End of period............. $254,929,372 $268,474,159
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Notes to Financial Statements
(Unaudited)
Prudential Municipal Series Fund (the ``Fund'') is registered under the
Investment Company Act of 1940 as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of
seventeen series. The monies of each series are invested in separate,
independently managed portfolios. The Pennsylvania Series (the ``Series'')
commenced investment operations in April, 1987. The Series is diversified and
seeks to achieve it's investment objective of obtaining the maximum amount of
income exempt from federal and applicable state income taxes with the minimum
of
risk by investing in ``investment grade'' tax-exempt securities whose ratings
are within the four highest ratings categories by a nationally recognized
statistical rating organization or, if not rated, are of comparable quality. The
ability of the issuers of the securities held by the Series to meet their
obligations may be affected by economic developments in a specific state,
industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund, and the Series, in the
preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Series is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the ``initial margin''. Subsequent payments, known as
``variation margin'', are made or received by the Series each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss. When the contract expires or is closed, the gain or
loss is realized and is presented in the statement of operations as net realized
gain (loss) on financial futures. The Series invests in financial futures
contracts in order to hedge its existing portfolio securities or securities the
Series intends to purchase against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends are made monthly. Distributions of net
capital gains, if any,
-13-
<PAGE>
are made annually. Income distributions and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an
annual rate of .50 of 1% of the average daily net assets of the Series.
Effective January 1, 1995, PMF has agreed to waive a portion (.05 of 1% of the
Series' average daily net assets) of its management fee, which amounted to
$20,124 ($0.001 per share for Class A, B and C shares: .01% of average net
assets). The Series is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution, (the ``Class A, B and C Plans'') regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1995.
PMFD has advised the Series that it has received approximately $23,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1995. From these fees, PMFD paid such sales charges
to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1995,
it received approximately $256,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During
the six months ended February 28, 1995, the Series incurred fees of
approximately $64,000 for the services of PMFS. As of February 28, 1995,
approximately $11,000 of such fees were due to PMFS. Transfer agent fees and
expenses in the Statement of Operations includes certain out-of-pocket expenses
paid to non-affiliates.
Note 4. Portfolio Purchases and sales of port-
Securities folio securities of the Series,
excluding short-term investments, for the six
months ended February 28, 1995 were $21,284,046 and $29,753,458, respectively.
The cost basis of investments for federal income tax purposes was
$240,210,908 and, accordingly, as of February 28, 1995 net unrealized
appreciation of investments for federal income tax purposes is $10,859,752
(gross unrealized appreciation--$13,909,304; gross unrealized
depreciation--$3,049,552).
At February 28, 1995 the Series sold 98 financial futures contracts on the
Municipal Bond Index expiring March 1995. The value at disposition of such
contracts was $9,035,000. The value of such contracts on February 28, 1995 was
$9,737,375 thereby resulting in an unrealized loss of $702,375.
The Fund will elect to treat net capital losses of approximately $1,202,900
incurred in the ten month period ended August 31, 1994 as having been incurred
in the current fiscal year.
Note 5. Capital The Series offers both Class
A, Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1%
-14-
<PAGE>
<PAGE>
during the first year. Class B shares will automatically convert to Class A
shares on a quarterly basis approximately seven years after purchase commencing
in or about February 1995.
The Fund has authorized an unlimited number of shares of beneficial interest
of each class at $.01 par value per share. Transactions in shares of beneficial
interest for the six months ended February 28, 1995 and the year ended August
31, 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 182,766 $ 1,842,768
Shares issued in reinvestment
of
distributions............... 25,758 259,918
Shares reacquired............. (134,442) (1,351,258)
---------- ------------
Net increase in shares
outstanding before
conversion.................. 74,082 751,428
Shares issued upon conversion
from Class B................ 2,971,623 30,340,274
---------- ------------
Net increase in shares
outstanding................. 3,045,705 $ 31,091,702
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 319,034 $ 3,481,332
Shares issued in reinvestment
of
dividends and
distributions............... 36,716 396,391
Shares reacquired............. (167,304) (1,791,755)
---------- ------------
Net increase in shares
outstanding................. 188,446 $ 2,085,968
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------ ---------- ------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 863,555 $ 8,666,078
Shares issued in reinvestment
of
distributions............... 383,191 3,837,884
Shares reacquired............. (2,468,924) (24,577,622)
---------- ------------
Net decrease in shares
outstanding before
conversion.................. (1,222,178) (12,073,660)
Shares reacquired upon
conversion into Class A..... (2,971,623) (30,340,274)
---------- ------------
Net decrease in shares
outstanding................. (4,193,801) $(42,413,934)
---------- ------------
---------- ------------
Year ended August 31, 1994:
Shares sold................... 3,979,725 $ 43,382,782
Shares issued in reinvestment
of
dividends................... 879,774 9,506,821
Shares reacquired............. (3,665,816) (39,199,030)
---------- ------------
Net increase in shares
outstanding................. 1,193,683 $ 13,690,573
<CAPTION>
---------- ------------
---------- ------------
Class C
- ------------------------------
<S> <C> <C>
Six months ended
February 28, 1995:
Shares sold................... 15,986 $ 162,744
Shares issued in reinvestment
of
dividends................... 378 3,783
Shares reacquired............. (3,846) (39,962)
---------- ------------
Net increase in shares
outstanding................. 12,518 $ 126,565
---------- ------------
---------- ------------
August 1, 1994* through
August 31, 1994:
Shares sold................... 8,669 $ 90,200
---------- ------------
---------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-15-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class
A
- ------------------------------------------------------------------------------
January 22,
Six Months
1990DD
Ended Year Ended
August 31, through
February 28,
- --------------------------------------------- August 31,
1995 1994 1993
1992 1991 1990
<S> <C> <C> <C>
<C> <C> <C>
------------ ------------ ------
------ ------ -----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.42 $ 11.21 $10.55
$ 9.96 $ 9.60 $ 9.83
------------ ------------ ------
------ ------ -----------
Income from investment
operations:
Net investment income............ .31D .59 .62
.62 .62D .38D
Net realized and unrealized gain
(loss) on investment
transactions................... (.07) (.68) .70
.59 .39 (.23)
------------ ------------ ------
------ ------ -----------
Total from investment
operations................... .24 (.09) 1.32
1.21 1.01 .15
------------ ------------ ------
------ ------ -----------
Less distributions:
Dividends from net investment
income......................... (.31) (.59) (.62)
(.62) (.62) (.38)
Distributions from net realized
gains.......................... -- (.11) (.04)
-- (.03) --
------------ ------------ ------
------ ------ -----------
Total distributions............ (.31) (.70) (.66)
(.62) (.65) (.38)
------------ ------------ ------
------ ------ -----------
Net asset value, end of period... $ 10.35 $ 10.42 $11.21
$10.55 $ 9.96 $ 9.60
------------ ------------ ------
------ ------ -----------
------------ ------------ ------
------ ------ -----------
TOTAL RETURN#:................... 2.41% (.82)% 12.86%
12.44% 10.82% 1.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................... $ 42,112 $ 10,651 $9,342
$5,908 $3,521 $ 1,823
Average net assets (000)......... $ 14,594 $ 10,315 $7,354
$4,439 $2,366 $ 977
Ratios to average net assets:
Expenses, including
distribution fees............ .75%*/D .75% .78%
.81% .83%D .78%*D
Expenses, excluding
distribution fees............ .65%*/D .65% .68%
.71% .74%D .68%*D
Net investment income.......... 6.24%*/D 5.52% 5.69%
5.99% 6.32%D 6.51%*D
Portfolio turnover............... 9% 22% 13%
25% 62% 37%
</TABLE>
- ---------------
* Annualized.
D Net of expense subsidy/management fee waiver.
DD Commencement of offering of Class A shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment
dividends and distributions. Total returns for periods of less than a
full year are not annualized.
See Notes to Financial Statements.
-16-
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Financial Highlights
(Unaudited)
<TABLE>
<CAPTION>
Class C
--------
Class B
Six
- -----------------------------------------------------------------------------
Months
Six Months
Ended
Ended Year Ended
August 31, February
February 28,
- ------------------------------------------------------------ 28,
1995 1994 1993
1992 1991 1990 1995
<S> <C> <C> <C> <C>
<C> <C> <C>
------------ -------- --------
- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning
of period................. $ 10.42 $ 11.21 $ 10.54 $
9.96 $ 9.60 $ 9.81 $ 10.42
------------ -------- --------
- -------- -------- -------- --------
Income from investment
operations:
Net investment income....... .29D .55 .57
.58 .58D .61D .27D
Net realized and unrealized
gain (loss) on investment
transactions.............. (.07) (.68) .71
.58 .39 (.21) (.07)
------------ -------- --------
- -------- -------- -------- --------
Total from investment
operations.............. .22 (.13) 1.28
1.16 .97 .40 .20
------------ -------- --------
- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income......... (.29) (.55) (.57)
(.58) (.58) (.61) (.27)
Distributions from net
realized gains............ -- (.11) (.04)
-- (.03) -- --
------------ -------- --------
- -------- -------- -------- --------
Total distributions....... (.29) (.66) (.61)
(.58) (.61) (.61) (.27)
------------ -------- --------
- -------- -------- -------- --------
Net asset value, end of
period.................... $ 10.35 $ 10.42 $ 11.21 $
10.54 $ 9.96 $ 9.60 $ 10.35
------------ -------- --------
- -------- -------- -------- --------
------------ -------- --------
- -------- -------- -------- --------
TOTAL RETURN#:.............. 2.20% (1.22)% 12.54%
11.92% 10.39% 4.08% 2.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 212,598 $257,732 $263,752
$206,028 $170,162 $150,824 $ 219
Average net assets (000).... $ 237,870 $266,594 $229,955
$186,113 $146,591 $141,183 $ 156
Ratios to average net
assets:
Expenses, including
distribution fees....... 1.14%*/D 1.15% 1.18%
1.21% 1.23%D 1.02%D 1.40%*/D
Expenses, excluding
distribution fees....... .64%*/D .65% .68%
.71% .74%D .53%D .65%*/D
Net investment income..... 5.84%*/D 5.11% 5.29%
5.59% 5.94%D 6.05%D 5.59%*/D
Portfolio turnover.......... 9% 22% 13%
25% 62% 37% 9%
<CAPTION>
August 1,
1994DD
through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMA
Net asset value, beginning
of period................. $10.44
----------
Income from investment
operations:
Net investment income....... .04
Net realized and unrealized
gain (loss) on investment
transactions.............. (.02)
----------
Total from investment
operations.............. .02
----------
Less distributions:
Dividends from net
investment income......... (.04)
Distributions from net
realized gains............ --
----------
Total distributions....... (.04)
----------
Net asset value, end of
period.................... $10.42
----------
----------
TOTAL RETURN#:.............. .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 90
Average net assets (000).... $ 1
Ratios to average net
assets:
Expenses, including
distribution fees....... 2.00%*
Expenses, excluding
distribution fees....... 1.25%*
Net investment income..... 8.51%*
Portfolio turnover.......... 22%
</TABLE>
- ---------------
* Annualized.
D Net of expense subsidy/management fee waiver.
DD Commencement of offering of Class C shares.
# Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment
dividends and distributions. Total returns for periods of less than
a full year are not annualized.
See Notes to Financial Statements.
-17-
<PAGE>
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Officers
Lawrence C. McQuade, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
The accompanying financial statements as of February 28, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
74435M879
74435M887 MF132E2
74435M481 (LOGO) Cat. #642131D
